The Reserve Bank of India, through the Reserve Bank of India (Small Finance Banks – Classification, Valuation, and Operation of Investment Portfolio) Amendment Directions, 2026 issued on May 18, 2026, has revised the framework relating to Investment Fluctuation Reserve (IFR) for Small Finance Banks (SFBs). The amendment was introduced in view of operational constraints faced by banks in maintaining IFR under the earlier framework. RBI has substituted paragraph 103 of the 2025 Directions and mandated that SFBs must create IFR out of realised gains on sale of investments, subject to availability of net profit, until the reserve reaches at least 2% of the Available for Sale (AFS) and Fair Value Through Profit and Loss (FVTPL), including Held for Trading (HFT), investment portfolio. The minimum requirement will be assessed annually based on the portfolio value as on the balance sheet date. The directions further clarify that transfers to IFR must be made only from net profit after mandatory appropriations, thereby providing a revised compliance mechanism for reserve maintenance.
Reserve Bank of India
RBI/2026-27/84DOR.MRG.REC.No.72/00-00-001/2026-27 | Dated: May 18, 2026
Reserve Bank of India (Small Finance Banks – Classification, Valuation, and Operation of Investment Portfolio) Amendment Directions, 2026
Please refer to paragraph 103 of Reserve Bank of India (Small Finance Banks – Classification, Valuation, and Operation of Investment Portfolio) Directions, 2025, dated November 28, 2025, on Investment Fluctuation Reserve (IFR). In view of certain operational constraints being faced by banks in the maintenance of IFR, 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 (Small Finance Banks – Classification, Valuation, and Operation of Investment Portfolio) Amendment Directions, 2026.
(ii) These Amendment Directions shall come into effect from the date of issue.
4. The Reserve Bank of India (Small Finance Banks – Classification, Valuation, and Operation of Investment Portfolio) Directions, 2025, are amended as provided below.
(i) Paragraph 103 shall be substituted by the following, namely: –
“103. A bank shall create an Investment Fluctuation Reserve (IFR) out of the realised gains on sale of investments, subject to the availability of net profit, until the balance in IFR is at least two per cent of the AFS and FVTPL (including HFT) portfolio. This minimum requirement shall be assessed annually based on the AFS and FVTPL (including HFT) portfolio values as of the balance sheet date. Transfer to IFR shall be made from net profit after mandatory appropriations.”.
(Sunil T S Nair)Chief General Manager
