What does Sebi's new restriction norm on AT1 bond mean?

Market regulator Sebi has asked mutual fund houses to restrict the exposure to additional Tier I and II (AT1 and AT2) bonds. This directive comes after write-offs in such bonds issued by two banks in the past year had hit investors. The Department of Financial Services had written to Sebi to withdraw the guidelines related to the change in valuation norms. While industry body Association of Mutual Funds in India (AMFI) had said that it is in discussion with Sebi to further smoothen the process of implementation of the circular.

So, what exactly are these AT1 or perpetual bonds? Why are they risky? And why are there conflicting views about such bonds? To understand everything about the Sebi norm and possible consequences, Mint's Nasrin Sultana is in conversation with Piyush Gupta, Director, Crisil Funds Research.