RBI Removes Investment Fluctuation Reserve Rule

The Reserve Bank of India removed the Investment Fluctuation Reserve requirement for commercial banks on 8 April 2026. The change applies under the Reserve Bank of India (Commercial Banks – Classification, Valuation, and Operation of Investment Portfolio) Second Amendment Directions, 2026.

Investment Fluctuation Reserve

The Investment Fluctuation Reserve was an additional buffer that commercial banks maintained against depreciation in the value of their investment portfolios. Banks used this reserve for losses arising from changes in the market value of government securities and other investments.

Capital Treatment and Prudential Norms

Outstanding balances in the Investment Fluctuation Reserve as on 17 May 2026 are to be treated as Tier 1 capital. The balances are to be transferred below the line to Statutory Reserve, General Reserve, or Balance of Profit and Loss Account. The Reserve Bank of India stated that capital charges for market risk and revised norms on investment portfolio classification and valuation already provide prudential safeguards. The central bank also proposed removal of the condition on non-performing asset provisioning for inclusion of quarterly profits in Capital to Risk-weighted Assets Ratio computation.

Applicability Across Bank Categories

Separate circulars on the Investment Fluctuation Reserve were issued for cooperative banks, small finance banks, and payments banks. These circulars were issued to address operational issues and to harmonise instructions across bank categories.

Important Facts for Exams

• The Reserve Bank of India was established in 1935 under the Reserve Bank of India Act, 1934.
• Tier 1 capital is a core measure of a bank’s financial strength under Basel capital norms.
• Capital to Risk-weighted Assets Ratio, or CRAR, is a key banking solvency indicator used in India.
• Statutory Reserve and General Reserve are part of a bank’s reserve funds and form part of its capital structure.

Regulatory Context

The amendment is linked to investment portfolio classification, valuation, and operation rules for commercial banks. The RBI’s decision took effect from 18 May 2026.