Current · Source: Reserve Bank of India · RBI/2026-27/87 · issued 18 May 2026 · ~2 min read
Quick answerRBI has relaxed IFR maintenance for Urban Co-operative Banks: minimum IFR is now 5% of the investment portfolio, computed with reference to book value of AFS and HFT categories, assessed annually. Banks can draw down excess IFR above 5% to P&L at year-end, addressing operational constraints.
The rule, in the simplest words
A UCB must keep at least 5% of its investment portfolio as IFR (how much money is set aside for price changes).
The 5% is calculated using the book value of investments in the AFS (Available‑for‑Sale) and HFT (High‑Frequency Trading) categories on the balance‑sheet date, and checked every year.
If the IFR is more than 5%, the bank can choose to move the extra amount into its profit or loss account at the end of the year, but the board must approve this decision.
The rule gives banks a clear, flat floor and lets them use extra reserves to boost earnings when they want.
How it plays out — a real example
A treasury officer named Riya at a UCB in Jaipur reviews the year‑end books. She sees the IFR stands at 7% of the portfolio. Following the new rule, she reports to the board, gets approval, and moves the 2% excess into the profit and loss account, giving the bank a nicer earnings picture for the year.
What changed
The minimum IFR requirement for UCBs is now fixed at 5% of the investment portfolio, computed with reference to the book value of investments in AFS and HFT categories as of the balance sheet date, assessed annually. Previously, the calculation method was different. Additionally, UCBs can now draw down IFR in excess of 5% to credit the P&L at year-end, at their discretion with board approval for higher IFR.
What it means for you
UCBs get clearer, simpler IFR rules: a flat 5% floor on the investment portfolio (computed on AFS+HFT book value) replaces earlier complex computation. This reduces compliance burden and gives flexibility to release excess IFR to profits, improving reported earnings. Banks must still maintain the 5% minimum annually, but can build higher IFR with board nod.
What you must do
Recalculate IFR as 5% of the investment portfolio, computed with reference to book value of AFS and HFT investments as of balance sheet date, effective immediately.
Assess IFR adequacy annually; if below 5%, make provisions to meet the minimum.
If IFR exceeds 5%, consider drawing down the excess to P&L at year-end, subject to board policy.
Update internal investment portfolio policies to reflect the new IFR computation and drawdown rules.
Train treasury and compliance teams on the revised IFR norms for accurate reporting.
Who it affects
Urban Co-operative Banks (UCBs), Treasury departments of UCBs, Compliance and risk management teams at UCBs, Auditors of UCBs
❓ Common questions
What is the new minimum IFR requirement for UCBs?
UCBs must maintain a minimum IFR of 5% of their investment portfolio, computed with reference to the book value of investments in AFS and HFT categories, assessed annually as of the balance sheet date.
Can UCBs use IFR above the minimum to boost profits?
Yes, UCBs may draw down IFR in excess of 5% of their investment in AFS and HFT to credit the profit and loss account at the end of any accounting year, at their discretion.
When do these amended directions take effect?
The amendment directions came into effect from the date of issue, May 18, 2026.
📜 Read the original circular — full text as issued by RBI
RBI/2026-27/87
DOR.MRG.REC.No.75/00-00-011/2026-27
May 18, 2026
Reserve Bank of India (Urban Co-operative Banks – Classification, Valuation, and Operation of Investment Portfolio) Amendment Directions, 2026
Please refer to paragraph 153 of Reserve Bank of India (Urban Co-operative 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), read with Section 56 thereof, 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 (Urban Co-operative 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 (Urban Co-operative Banks - Classification, Valuation, and Operation of Investment Portfolio) Directions, 2025 , are amended as provided below.
(i) Paragraph 153.(4) shall be substituted by the following, namely: -
“153.(4) A UCB shall maintain minimum IFR of 5 per cent of the investment portfolio. This minimum requirement shall be assessed annually and shall be computed with reference to the book value of investments in HFT and AFS categories as of the balance sheet date. A UCB may, at its discretion, build up a higher percentage of IFR depending on the size and composition of its portfolio, with the approval of its Board.”.
(ii) Paragraph 154.(1) shall be substituted by the following, namely: -
“154.(1) A UCB may, at its discretion, draw down the balance available in IFR in excess of 5 per cent of its investment in AFS and HFT for credit to the balance of profit / loss as disclosed in the Profit and Loss Account at the end of any accounting year.”.
(Sunil T S Nair)
Chief General Manager
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2026-27/87 · issued 18 May 2026. The plain-English explanation above is BankPulse’s own independent summary.
Example: if you are a Compliance officer at a bank this circular applies to (Urban Co-operative Banks (UCBs), Treasury departments of UCBs, Compliance and risk management teams at UCBs, Auditors of UCBs), your first concrete step on “UCB Investment Fluctuation Reserve Norms Eased” is: “Recalculate IFR as 5% of the investment portfolio, computed with reference to book value of AFS and HFT investments as of balance sheet date, effective immediately.” (RBI issued this 18 May 2026).
Action required: Recalculate IFR as 5% of the investment portfolio, computed with reference to book value of AFS and HFT investments as of balance sheet date, effective immediately.
Action required: Assess IFR adequacy annually; if below 5%, make provisions to meet the minimum.
Action required: If IFR exceeds 5%, consider drawing down the excess to P&L at year-end, subject to board policy.
Action required: Update internal investment portfolio policies to reflect the new IFR computation and drawdown rules.
Action required: Train treasury and compliance teams on the revised IFR norms for accurate reporting.
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
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BankPulse Compliance Evidence Pack — generated 02 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=13454&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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