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RBI discontinues Investment Fluctuation Reserve for banks

Current · Source: Reserve Bank of India · RBI/2026-27/83 · issued 18 May 2026 · ~2 min read

Quick answerRBI has scrapped the Investment Fluctuation Reserve (IFR) requirement for commercial banks effective May 18, 2026. Existing IFR balances must be transferred below the line to statutory or general reserves. This simplifies investment portfolio norms under the 2025 Directions.

The rule, in the simplest words

From May 18, 2026, banks do not have to keep a special fund called Investment Fluctuation Reserve (IFR) for ups and downs in investment prices.
Any money already in the IFR on May 17, 2026, must be moved to other reserve accounts like Statutory Reserve, General Reserve, or Profit & Loss Account.
Foreign banks in India must move their IFR money to Indian statutory reserves or a special surplus that cannot be sent out of India as long as the bank operates here.
Banks should update their internal rules and remove old instructions about IFR from their compliance books.

How it plays out — a real example

A treasury officer in Indore, Priya, checks the new RBI rule and sees her bank's IFR balance of ₹2 crore must be transferred to the General Reserve by May 18, 2026. She works with the finance team to update the bank's accounting system so the money moves correctly, freeing up capital for more gold loans.

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

❓ Common questions

Regulatory timeline

Stated effective date effective May 18, 2026
Decoded by BankPulse 2026-06-17 13:41 IST

Built from our lineage records — each fact carries its provenance; missing history simply is not shown (never guessed).

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.

📜 Read the original circular — full text as issued by RBI

RBI/2026-27/83
 DOR.MRG.REC.No.71/00-00-001/2026-27
 May 18, 2026 
 Reserve Bank of India (Commercial Banks - Classification, Valuation, and Operation of Investment Portfolio) Second Amendment Directions, 2026
 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) Second Amendment Directions, 2026.
 (ii) These Amendment Directions shall come into effect from the date of issue.
 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 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. For a foreign bank operating in India in branch mode, the balance in IFR shall be transferred directly to ‘statutory reserves kept in Indian books’ or ‘remittable surplus retained in Indian books which is not repatriable so long as the bank functions in India’.”.
 (ii) Paragraphs 106 to 108 shall be deleted. 
 (Sunil T S Nair)
 Chief General Manager

Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2026-27/83 · issued 18 May 2026. The plain-English explanation above is BankPulse’s own independent summary.

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Who does what — compliance checklist

🏦 Branch Manager

For foreign banks in branch mode, ensure IFR balance is moved to statutory reserves in Indian books or remittable surplus retained in Indian books.

💻 IT / Systems

Update internal policies and reporting systems to reflect the discontinuation of IFR from May 18, 2026.

📜 Compliance

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.
Delete references to paragraphs 106-108 of the 2025 Directions from your compliance manuals.

Grouped from the action items above — a single circular may involve more than one team.

Worked example & action-note template

Example: if you are a Compliance officer at a bank this circular applies to (All commercial banks in India, Foreign banks operating in India in branch mode, Treasury and risk management teams, Compliance and finance departments), your first concrete step on “RBI discontinues Investment Fluctuation Reserve for banks” is: “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.” (RBI issued this 18 May 2026).

Circular: RBI/2026-27/83 -- RBI discontinues Investment Fluctuation Reserve for banks
Issued: 18 May 2026
Action required: 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.
Action required: For foreign banks in branch mode, ensure IFR balance is moved to statutory reserves in Indian books or remittable surplus retained in Indian books.
Action required: Update internal policies and reporting systems to reflect the discontinuation of IFR from May 18, 2026.
Action required: Delete references to paragraphs 106-108 of the 2025 Directions from your compliance manuals.
Owner: ____________ Target date: ____________
Board/committee approval needed? Y / N
Evidence filed in compliance register on: ____________

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BankPulse Compliance Evidence Pack — generated 03 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly).
Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13450&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.