Mumbai, April 8 The Reserve Bank on Wednesday decided to discontinue the Investment Fluctuation Reserve (IFR), an additional buffer that banks were required to maintain to mitigate the risk of depreciation in the value of investments, as a measure to support the capital adequacy of lenders.
Currently, banks maintain IFR as an additional buffer against depreciation in the value of their investments, subject to mark-to-market (MTM) requirements.
Currently, commercial banks (including Local Area Banks, but excluding Small Finance Banks, Payment Banks, and Regional Rural Banks) already maintain capital charges for market risk and also follow revised norms on the classification, valuation, and operation of investment portfolios.
In consideration of these applicable prudential requirements, it is proposed to discontinue the IFR requirement for such commercial banks, the RBI said in its statement on Developmental and Regulatory Policies.
The existing guidelines for other bank categories are also being revised to address the operational challenges encountered by such banks in complying with the regulatory thresholds on IFR, and to harmonize instructions across bank categories, thereby enhancing regulatory clarity and consistency. Draft directions in this regard will be issued shortly for public consultation, it said.
Announcing the first bi-monthly monetary policy for the current fiscal, RBI Governor Sanjay Malhotra proposed to remove the condition regarding NPA provisioning for the inclusion of quarterly profits in the CRAR (Capital to Risk-weighted Assets Ratio) computation.
As per the extant guidelines, commercial banks (excluding Regional Rural Banks and Local Area Banks) are permitted to include quarterly net profits in the calculation of CRAR, provided that the incremental provisions made for Non-Performing Assets (NPAs) at the end of any of the four quarters of the previous financial year, have not deviated more than 25 per cent of the average of the four quarters.
In a review, it is proposed to discontinue this condition. The draft amendment directions in this regard will be issued for public comments shortly, the Statement on Developmental and Regulatory Policies said.