Definition
Point of Non-Viability (PONV)
The Point of Non-Viability is the trigger at which the RBI can require a bank's AT1 and certain Tier 2 instruments to be written down or converted to equity to keep it afloat.
PONV is a Basel III concept: if the regulator judges a bank non-viable without support, the bank's loss-absorbing capital instruments must take losses before any public money is used. This is what allows AT1 bonds to count as going-concern capital.
In India, the PONV clause was invoked in the Yes Bank reconstruction, where AT1 bonds were fully written down. PONV is the reason AT1 and similar instruments carry higher risk and yield than ordinary bank bonds, since holders can be wiped out at the RBI's discretion.
Related terms
- Tier 2 CapitalTier 2 capital is a bank's supplementary, gone-concern capital, including subordinated debt and certain reserves, that absorbs losses only if the bank is wound up.
- Basel III NormsBasel III is the global bank regulation framework, adopted by the RBI, that strengthens capital quality, adds liquidity and leverage standards, and introduces capital buffers.
- AT1 Bonds (Additional Tier 1)AT1 bonds are perpetual, loss-absorbing instruments that count as Additional Tier 1 capital for banks and can be written down or have coupons skipped under stress.
- Subordinated DebtSubordinated debt is borrowing that ranks below senior creditors and depositors in repayment, often issued by banks and NBFCs to raise Tier 2 capital.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.