Payments Banks IFR Norms Eased: New 2% Floor on AFS & FVTPL
Current · Source: Reserve Bank of India · RBI/2026-27/85 · issued 18 May 2026 · ~1 min read
Quick answerRBI has relaxed Investment Fluctuation Reserve (IFR) rules for payments banks. The IFR must now be at least 2% of the AFS and FVTPL (including HFT) portfolio, assessed annually. Transfers are from net profit after mandatory appropriations, using realised gains on sale of investments.
The rule, in the simplest words
Payments banks must keep a special savings pot called IFR (Investment Fluctuation Reserve) that is at least 2% of their AFS (Available for Sale) and FVTPL (Fair Value Through Profit and Loss, including HFT or Held for Trading) investments.
Every year, on the balance sheet date (the last day of the financial year), the bank checks if the IFR is big enough. If not, it must add money from profits made by selling investments.
The money added to IFR can only come from net profit (profit after all costs) and only after the bank has already set aside money for other required reserves (mandatory appropriations).
Once the IFR reaches the 2% target, the bank doesn't need to add more unless the investment portfolio grows and the percentage falls below 2% again.
How it plays out — a real example
A branch operations officer in Indore, Priya, is reviewing her payments bank's annual accounts. She sees the AFS and FVTPL portfolio is ₹500 crore, so the IFR must be at least ₹10 crore (2%). The current IFR is only ₹8 crore, so she instructs the treasury team to transfer ₹2 crore from realised gains on sold investments, taken from net profit after mandatory appropriations, to meet the new floor.
What changed
The earlier IFR requirement under paragraph 112 of the 2025 Directions has been replaced. The new rule sets a minimum IFR balance of 2% of the combined AFS and FVTPL (including HFT) portfolio, assessed annually as of the balance sheet date. Transfers to IFR must be made from net profit after mandatory appropriations, using realised gains on sale of investments.
What it means for you
Payments banks now have a clearer, simpler IFR target tied to their trading and available-for-sale portfolios. This reduces operational complexity in maintaining the reserve. Banks must ensure annual compliance by transferring realised gains to IFR until the 2% threshold is met, which may impact profit distribution and capital planning.
What you must do
Recalculate IFR requirement as 2% of AFS and FVTPL (including HFT) portfolio as of each balance sheet date.
Transfer realised gains on sale of investments to IFR from net profit after mandatory appropriations until the 2% floor is reached.
Review annual profit appropriation process to ensure IFR transfers are prioritised before other discretionary allocations.
Update internal policies and systems to track IFR balance against the new portfolio-based threshold.
Who it affects
Payments banks, Treasury and finance teams of payments banks, Compliance and risk management departments
❓ Common questions
When does this amendment take effect?
The amendment is effective from the date of issue, which is May 18, 2026.
📜 Read the original circular — full text as issued by RBI
RBI/2026-27/85
DOR.MRG.REC.No.73/00-00-001/2026-27
May 18, 2026
Reserve Bank of India (Payments Banks - Classification, Valuation, and Operation of Investment Portfolio) Amendment Directions, 2026
Please refer to paragraph 112 of Reserve Bank of India (Payments 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 (Payments 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 (Payments Banks - Classification, Valuation, and Operation of Investment Portfolio) Directions, 2025 , are amended as provided below.
(i) Paragraph 112 shall be substituted by the following, namely: -
“112. 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
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2026-27/85 · issued 18 May 2026. The plain-English explanation above is BankPulse’s own independent summary.
Update internal policies and systems to track IFR balance against the new portfolio-based threshold.
📜 Compliance
Recalculate IFR requirement as 2% of AFS and FVTPL (including HFT) portfolio as of each balance sheet date.
Transfer realised gains on sale of investments to IFR from net profit after mandatory appropriations until the 2% floor is reached.
Review annual profit appropriation process to ensure IFR transfers are prioritised before other discretionary allocations.
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 (Payments banks, Treasury and finance teams of payments banks, Compliance and risk management departments), your first concrete step on “Payments Banks IFR Norms Eased: New 2% Floor on AFS & FVTPL” is: “Recalculate IFR requirement as 2% of AFS and FVTPL (including HFT) portfolio as of each balance sheet date.” (RBI issued this 18 May 2026).
Circular: RBI/2026-27/85 -- Payments Banks IFR Norms Eased: New 2% Floor on AFS & FVTPL
Issued: 18 May 2026
Action required: Recalculate IFR requirement as 2% of AFS and FVTPL (including HFT) portfolio as of each balance sheet date.
Action required: Transfer realised gains on sale of investments to IFR from net profit after mandatory appropriations until the 2% floor is reached.
Action required: Review annual profit appropriation process to ensure IFR transfers are prioritised before other discretionary allocations.
Action required: Update internal policies and systems to track IFR balance against the new portfolio-based threshold.
Owner: ____________ Target date: ____________
Board/committee approval needed? Y / N
Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.
💬 Banker Discussion
Discuss this circular with fellow bankers — reply, upvote what helps, report what doesn’t belong. Be professional; no client data. Views are the commenter’s own, not BankPulse’s.
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=13452&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.
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