RBI discontinues IFR requirement for banks

The Reserve Bank on Monday discontinued the requirement for commercial banks to maintain Investment Fluctuation Reserve (IFR), an additional buffer to hedge against depreciation in the value of investments.

In view of the developments in the prudential frameworks governing market risk and investments for commercial banks, there is a need to amend the extant instructions, it said while issuing Reserve Bank of India (Commercial Banks - Classification, Valuation, and Operation of Investment Portfolio) Second Amendment Directions, 2026.

The requirement of IFR has been discontinued with effect from May 18, 2026, said a circular. The balance in the IFR as on May 17, 2026, shall be transferred ‘below the line’ to Statutory Reserve, General Reserve, or Balance of Profit and Loss Account, it said.

For a foreign bank operating in India in branch mode, the balance in IFR shall be transferred directly to statutory reserves kept in Indian books or remittable surplus retained in Indian books, which is not repatriable, so long as the bank functions in India, RBI said.

The RBI has issued separate circulars on IFR for various bank categories, including cooperative banks, small finance banks (SFBs), and payments banks (PBs).

It said the final guidelines for SFBs and PBs have been suitably amended to clarify that transfer to IFR must be made from net profit after mandatory appropriations.

Banks currently maintain IFR as an additional buffer against depreciation in the value of their investments, subject to mark-to-market (MTM) requirements.

Earlier, the Reserve Bank had issued draft norms on IFR to seek stakeholders' comments.