RBI to withdraw investment fluctuation reserve requirement for banks

Kolkata: The Reserve Bank of India has proposed to dispense with the investment fluctuation reserve (IFR) requirement for commercial banks, noting that existing prudential norms — such as capital charges for market risk and revised investment classification and valuation standards — already provide adequate safeguards.

Investment fluctuation reserve (IFR) acts as an additional buffer to hedge against depreciation in the value of investments. It is being set aside from profits to cover potential declines in a company's market value of investments.

Check live updates of RBI MPC Policy


Currently, commercial banks -- excluding small finance banks, payments banks and regional rural banks while including local area banks -- maintain capital charge for market risk and also follow revised norms on classification, valuation, and operation of investment portfolio, the RBI said.

"In view of the developments in prudential framework over the years, it is proposed to dispense with the requirement to maintain an investment fluctuation reserve (IFR) as an additional buffer to hedge against depreciation in the value of investments," Governor Sanjay Malhotra said Wednesday.

The existing guidelines for other bank categories are also being revised to address the operational challenges encountered by such banks in complying with the regulatory thresholds on IFR and to harmonise instructions across bank categories, thereby enhancing regulatory clarity and consistency.

RBI will soon issue draft directions on this proposal for public consultation.