RBI eases NPA-linked capital rules, scraps IFR buffer for banks

Mumbai: The Reserve Bank of India has relaxed capital computation norms for banks, removing a key NPA-linked condition for including quarterly profits in capital adequacy calculations, while also proposing to do away with the Investment Fluctuation Reserve (IFR), RBI Governor Sanjay Malhotra said in the first bi-monthly policy review of FY27.

Under existing rules, banks could include quarterly profits in their capital to risk weighted assets ratio (CRAR) only if incremental provisioning for non-performing assets (NPAs) did not deviate more than 25% from the four quarter average. The RBI has now proposed to dispense with this requirement, easing constraints on capital recognition. The regulator will issue draft amendments for public comment.

Separately, the central bank will remove the requirement for banks to maintain an IFR, which is an additional buffer against mark-to-market losses on investments, given the evolution of prudential norms, including capital charges for market risk and revised investment classification frameworks.


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“These are two measures regarding capital adequacy of banks,” Malhotra said, referring to the removal of the NPA provisioning condition and the scrapping of IFR.

The moves come amid a strengthening banking system balance sheet. Capital adequacy of scheduled commercial banks stood at 16.91% as of December 2025, well above regulatory thresholds. Asset quality improved, with the gross NPA ratio declining to 1.89% from 2.42% a year earlier, and net NPA ratio easing to 0.44% from 0.55%.

Non-bank lenders also showed resilience, with CRAR at 25.59% and Tier I at 23.71%. Their gross NPA ratio improved to 2.14% from 2.52%, while net NPAs fell to 0.93% from 1.10%.

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The RBI said IFR norms for other bank categories will be revised to address operational challenges and harmonise requirements, with draft guidelines to follow.