The Reserve Bank of India has issued draft Amendment Directions, 2026, proposing changes to the Investment Fluctuation Reserve (IFR) requirements applicable to Small Finance Banks. The amendment revises paragraph 103 of the 2025 Directions to address operational challenges faced by banks in maintaining IFR levels. Under the revised framework, banks must create IFR out of realised gains on the sale of investments, subject to the availability of net profits, until the reserve reaches at least 2% of the AFS (Available for Sale) and FVTPL (Fair Value Through Profit and Loss, including HFT) portfolio. Importantly, the minimum IFR requirement will now be assessed annually based on portfolio values as of the balance sheet date, instead of requiring continuous compliance. Issued under Section 35A of the Banking Regulation Act, 1949, the draft reflects RBI’s intent to ease compliance burdens while maintaining prudential safeguards.
Reserve Bank of India
RBI/2026-27/
DOR.MRG.REC.No. /00-00-001/2026-27
XX, 2026
Reserve Bank of India (Small Finance Banks – Classification, Valuation, and Operation of Investment Portfolio) Amendment Directions, 2026 – Draft for Comments
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 on the day these are placed on the official website of the Reserve Bank.
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.”.
(Sunil T S Nair)
Chief General Manager
