Reserve Bank of India (RBI) discontinues Investment Fluctuation Reserve (IFR) requirement for commercial banks

Key facts

• The RBI has issued final amendment directions to dispense with the IFR requirement for commercial banks effective from May 18, 2026.
• The IFR serves as a financial buffer maintained by banks to absorb valuation losses in investment portfolios resulting from interest rate movements and market volatility.
• The balance in the IFR as of May 17 will be transferred to the statutory reserve, general reserve, or profit and loss account, effectively treating the balance as Tier 1 capital.
• The amendments cover a broad set of regulated entities including Small Finance Banks (SFBs), Payments Banks (PBs), Local Area Banks (LABs), Urban Co-operative Banks (UCBs), Rural Co-operative Banks, and Regional Rural Banks (RRBs).
• For remaining regulated entities, the RBI has relaxed compliance by allowing the maintenance of the prescribed IFR level only on balance sheet dates instead of on a continuous basis.