Banking Exam Question - What is Hybrid Capital Instruments? What are the NRB Directives about Category of Hybrid Capital Instruments? Explain

Introduction - Hybrid Capital Instruments

Hybrid securities generally combine both debt and equity characteristics. The most common type of hybrid security is a convertible bond that has features of an ordinary bond but is heavily influenced by the price movements of the stock into which it is convertible.

Hybrid security is a generic term used to describe a security that combines elements of debt securities and equity securities. Hybrid securities typically promise to pay a rate of return (fixed or floating) until a certain date, in the same way debt securities do.

It is these features that make them cross breed securities – they are value securities that compensation obligation like returns. An inclination share is given that name since holders of an inclination share rank in front of holders of conventional offers for the installment of profits and recuperation of capital.

Hybrid capital capital is a type of obligation that has been substituted for value. This kind of capital has both obligation and value highlights. This covers an assortment of instruments, for example, inclination shares, that are not unadulterated value but rather have generally been regarded sufficiently close to it to tally towards a bank's level one capital proportion.