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AT1 Bonds: Banking and Finance

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Questions and Answers

What is the primary purpose of AT1 bonds for banks?

To reduce their liquidity

To augment their core equity base (correct)

To reduce their net demand and time liabilities

To increase their cash reserve ratio

What is the key characteristic of AT1 bonds?

They are senior to all other debt

They are perpetual in nature (correct)

They have a fixed maturity date

They have a fixed rate of return

What happens to AT1 bonds in the event of an institutional failure?

The issuer is required to pay more interest

The issuer can stop paying interest or write down the bonds (correct)

The bonds are converted to equity

The interest rate increases

What is the purpose of the Cash Reserve Ratio (CRR)?

To regulate liquidity in the economy (A) Signup and view all the answers

What is the current CRR requirement for banks in India?

4.5% of their Net Demand and Time Liabilities (NDTL) (D) Signup and view all the answers

What is the purpose of the Incremental Cash Reserve Ratio (ICRR)?

To regulate liquidity in the economy during periods of surplus liquidity (C) Signup and view all the answers

What was the primary reason behind the RBI's decision to impose an additional cash reserve ratio?

To absorb excess liquidity in the system (B) Signup and view all the answers

What is the primary function of the Repo Rate?

To enhance liquidity in the economy (B) Signup and view all the answers

Under what circumstances does the RBI use the Variable Repo Rate (VRR)?

When the RBI desires to infuse liquidity in the economy, but banks are not eager to borrow (B) Signup and view all the answers

What is the minimum duration for borrowing under the Variable Repo Rate (VRR)?

More than one day (D) Signup and view all the answers

What was the amount of liquidity that the RBI infused into the economy via the Variable Repo Rate (VRR) auction?

₹2.50-lakh crore (B) Signup and view all the answers

Why does an increase in liquidity in the economy lead to inflation?

Due to an increase in money supply (B) Signup and view all the answers