The Reserve Bank of India has issued draft Amendment Directions, 2026, proposing significant changes to the prudential framework governing commercial banks’ investment portfolios. The key proposal is the discontinuation of the Investment Fluctuation Reserve (IFR), which was earlier maintained to cushion valuation losses arising from market fluctuations. Under the draft, banks will be permitted to treat the existing IFR balance as Tier 1 capital by transferring it below the line to reserves such as the Statutory Reserve, General Reserve, or Profit and Loss balance. Additionally, related provisions under paragraphs 106 to 108 are proposed to be deleted. The amendment reflects evolving regulatory approaches to market risk and investment management, aiming to simplify compliance and strengthen capital adequacy. These changes are proposed under Section 35A of the Banking Regulation Act, 1949, and will take effect upon notification, subject to stakeholder feedback.
Reserve Bank of India
RBI/2026-27/
DOR.MRG.REC.No. /00-00-001/2026-27
XX, 2026
Reserve Bank of India (Commercial Banks – Classification, Valuation, and Operation of Investment Portfolio) Amendment Directions, 2026 – Draft for Comments
Please refer to paragraph 105 of Reserve Bank of India (Commercial Banks – Classification, Valuation, and Operation of Investment Portfolio) Directions, 2025, dated November 28, 2025, on Investment Fluctuation Reserve (IFR). 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.
2. Accordingly, in exercise of the powers conferred by Section 35A of the Banking Regulation Act, 1949 (hereinafter called the Act) and all other laws enabling the Reserve Bank in this regard, the Reserve Bank, being satisfied that it is necessary and expedient in the public interest so to do, hereby, issues the Amendment Directions hereinafter specified.
3. (i) These Directions shall be called the Reserve Bank of India (Commercial Banks – Classification, Valuation, and Operation of Investment Portfolio) Amendment Directions, 2026.
(ii) These Amendment Directions shall come into effect on the day these are placed on the official website of the Reserve Bank.
4. The Reserve Bank of India (Commercial Banks – Classification, Valuation, and Operation of Investment Portfolio) Directions, 2025, are amended as provided below.
(i) Paragraph 105 shall be substituted by the following, namely: –
“105. The requirement of Investment Fluctuation Reserve (IFR) has been discontinued. A bank shall treat the outstanding balance in the IFR as Tier 1 capital. For this purpose, the balance in the IFR shall be transferred ‘below the line’ to Statutory Reserve, General Reserve, or Balance of Profit & Loss Account.”.
(ii) Paragraphs 106 to 108 shall be deleted.
(Sunil T S Nair)
Chief General Manager
