Why in the news
The RBI finalised changes to its investment portfolio directions. Banks that already set aside capital for market risk no longer need an IFR, while other bank types keep it with lighter checking.
Key facts
- Date: 18 May 2026; amendments to the Master Direction on bank investment portfolios.
- IFR requirement withdrawn for banks keeping a capital charge for market risk under the revised investment portfolio framework.
- Old IFR balance can be shifted to statutory reserve, general reserve or P&L balance and counted as CET1.
- Still under IFR: Urban Co-operative Banks, Small Finance Banks, Payments Banks and Regional Rural Banks.
- For these, the minimum IFR is judged only on balance-sheet dates, not continuously.
- Foreign banks as branches may move IFR to the statutory reserve in Indian books or to remittable surplus kept in India, which cannot be repatriated while operating here.
- UCBs may draw down excess IFR above the threshold below the line at their discretion; paragraph 154(3) applies in every case.
- SFBs and Payments Banks must fund IFR transfers from net profit after mandatory appropriations.
Who gets what
| Category | Treatment |
|---|
| Banks with market risk capital charge | IFR withdrawn; balance becomes CET1 via reserves |
| UCBs, SFBs, Payments Banks, RRBs | IFR retained; checked on balance-sheet dates only |
| Foreign bank branches | Transfer to statutory reserve or remittable surplus in Indian books |
Requests the RBI turned down
- UCBs said IDR and IFR serve one purpose and small UCBs should be exempt; RBI said they differ structurally and every entity faces MTM market risk.
- SFBs cited higher capital adequacy; RBI noted they keep no market risk capital charge, so the criterion is unmet.
- Loss-making RRBs sought relief; RBI said tying IFR to profit would defeat its countercyclical purpose.
IDR versus IFR
| Aspect | IDR | IFR |
|---|
| Nature | Provision | Reserve |
| Trigger | Specific mark-to-market depreciation | Gains in the investment cycle |
| Function | Cover identified losses | Countercyclical buffer |
| Purpose | Loss recognition | Stability buffer |
Background
- IFR is built from investment gains in good times to absorb later market losses.
- Banks with a market risk capital charge already hold capital against the same risk, so IFR would duplicate reserving and cut lendable capital.
- Freed reserves lift CET1 and CRAR figures and match global practice.
- Investment portfolio framework: issued September 2023, effective April 2024; classes are HTM, AFS and FVTPL on Ind-AS lines.
- CET1 is top-quality Basel III capital: paid-up equity, statutory reserves, retained earnings and some other reserves.
- CRAR minimum 9% plus 2.5% conservation buffer, effectively 11.5%, with at least 5.5% CET1.
- BCBS: set up in 1974, housed at BIS, Basel.
Bank types
| Type | Key detail |
|---|
| Small Finance Bank | Guidelines 2015; at least 75% of ANBC to priority sector; 25% branches in unbanked rural centres |
| Payments Bank | Guidelines 2014; deposits up to ₹2 lakh per customer; cannot lend |
| Regional Rural Bank | Centre 50%, sponsor bank 35%, State 15%; Act of 1976; supervised by NABARD |
| UCBs | Regulated by RBI and also the Registrar of Cooperative Societies |
Exam angle
- Only criterion for exemption: market risk capital charge.
- No exemption by size, profit or sector.
- Related terms: countercyclical buffer, procyclicality, Basel III pillars (minimum capital, supervisory review, market discipline).