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Beware of the risks when investing in bank perpetual bonds
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Perpetual bonds of banks often yield a higher rate than the interest on fixed deposits. They are marketed to retail investors, especially retirees looking for a regular income.
For instance the yield on SBI perpetual bond (as of 15 May) on BSE was 8.58%. This is considerably higher than the 5-7% offered on SBI FDs.
For Syndicate Bank, the yield was as high as 10.75%. However, in many cases, investors are not warned of the risks involved.
Some of the perpetual bonds (such as AT1 bonds) are explicitly issued as 'risk absorbing' instruments and are subject to write-down if the bank's capital falls below pre-defined thresholds.
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