RBI Scraps Mandatory IFR Requirement For Banks Under Revised Investment Norms

New Delhi, May 20 (KNN) The Reserve Bank of India (RBI) has issued final directions dispensing with the mandatory Investment Fluctuation Reserve (IFR) requirement for banks that already maintain a capital charge for market risk and adhere to the revised norms governing classification, valuation, and operation of investment portfolios.

What Is the IFR?

The IFR is a financial buffer that banks are required to maintain to absorb valuation losses in their investment portfolios, particularly those arising from interest rate movements and broader market volatility. The RBI's latest move effectively renders this buffer redundant for banks already operating under a more rigorous, risk-sensitive framework.

Key Changes Under the Revised Framework

With effect from May 18, 2026, the RBI has formally discontinued the IFR requirement for commercial banks. Existing IFR balances as of May 17 are to be transferred to statutory reserves, general reserves, or the profit and loss account — and will count as Tier 1 capital going forward.

For foreign banks operating in India through branches, the IFR balance is to be moved to statutory reserves maintained in Indian books or to remittable surplus retained locally.

For all remaining regulated entities not yet under the revised investment portfolio framework, the RBI has eased compliance by allowing them to maintain the prescribed IFR level only on balance sheet dates, rather than on a continuous basis — a measure aimed at reducing operational rigidity while retaining prudential safeguards.

Broad Regulatory Coverage

The amended directions span a wide range of regulated entities, covering commercial banks, small finance banks, payments banks, local area banks, urban co-operative banks, rural co-operative banks, and regional rural banks. 

The RBI has also moved to harmonise IFR-related instructions across these categories, eliminating existing inconsistencies and improving regulatory clarity.

(KNN Bureau)