The Reserve Bank of India, through the Reserve Bank of India (Local Area Banks – Classification, Valuation, and Operation of Investment Portfolio) Amendment Directions, 2026 issued on May 18, 2026, has discontinued the requirement for maintaining Investment Fluctuation Reserve (IFR) for Local Area Banks with immediate effect. RBI stated that the amendment was necessitated by developments in prudential frameworks governing market risk and investment portfolios applicable to Local Area Banks. Under the revised paragraph 104 of the 2025 Directions, the balance available in IFR as on May 17, 2026, must be transferred “below the line” to the Statutory Reserve, General Reserve, or Balance of Profit and Loss Account. Additionally, paragraphs 105 to 107 of the earlier framework have been deleted, formally removing the IFR-related compliance provisions. The amendment was issued under Section 35A of the Banking Regulation Act, 1949, and reflects RBI’s effort to simplify reserve management norms while aligning investment portfolio regulations with updated prudential and market risk frameworks.
Reserve Bank of India
RBI/2026-27/86
DOR.MRG.REC.No.74/00-00-001/2026-27 | Dated: May 18, 2026
Reserve Bank of India (Local Area Banks – Classification, Valuation, and Operation of Investment Portfolio) Amendment Directions, 2026
Please refer to paragraph 104 of Reserve Bank of India (Local Area 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 Local Area 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 (Local Area 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 (Local Area Banks – Classification, Valuation, and Operation of Investment Portfolio) Directions, 2025, are amended as provided below.
(i) Paragraph 104 shall be substituted by the following, namely: –
“104. The requirement of Investment Fluctuation Reserve (IFR) has been discontinued w.e.f. May 18, 2026. The balance in the IFR as on May 17, 2026, shall be transferred ‘below the line’ to Statutory Reserve, General Reserve, or Balance of Profit & Loss Account.”.
(ii) Paragraphs 105 to 107 shall be deleted.
(Sunil T S Nair)
Chief General Manager
