What changed
Paragraph 105 of the 2025 Directions on IFR has been replaced, discontinuing the IFR requirement from May 18, 2026. The balance in IFR as of May 17, 2026, must be transferred below the line to Statutory Reserve, General Reserve, or Balance of Profit & Loss Account. For foreign banks in branch mode, the transfer goes to statutory reserves or remittable surplus retained in Indian books. Paragraphs 106 to 108 of the Directions have been deleted.
What it means for you
Banks no longer need to maintain an Investment Fluctuation Reserve, freeing up capital that was previously set aside for market risk on investments. This aligns with updated prudential frameworks and reduces compliance burden. The transfer of existing IFR balances to reserves strengthens core capital or retained earnings, potentially improving capital ratios.
What you must do
- Transfer the IFR balance as on May 17, 2026, below the line to Statutory Reserve, General Reserve, or Profit & Loss Account as per your bank's structure.
- For foreign banks in branch mode, ensure IFR balance is moved to statutory reserves in Indian books or remittable surplus retained in Indian books.
- Update internal policies and reporting systems to reflect the discontinuation of IFR from May 18, 2026.
- Delete references to paragraphs 106-108 of the 2025 Directions from your compliance manuals.
Who it affects
All commercial banks in India, Foreign banks operating in India in branch mode, Treasury and risk management teams, Compliance and finance departments
What happens to the IFR balance we already hold?
The IFR balance as of May 17, 2026, must be transferred below the line to Statutory Reserve, General Reserve, or Balance of Profit & Loss Account. For foreign bank branches, transfer to statutory reserves in Indian books or remittable surplus retained in Indian books.
Does this change affect our investment classification or valuation norms?
No, this amendment only discontinues the IFR requirement. The classification, valuation, and operation of investment portfolio rules under the 2025 Directions remain unchanged except for the deletion of paragraphs 106-108.
When does this amendment take effect?
The amendment is effective from the date of issue, May 18, 2026. The IFR requirement is discontinued from that date.