Date: 2020-03-17Category: Not ApplicableState: Union GovernmentCountry: India
Prudential Norms for Classification, Valuation and Operation of Investment Portfolio by Banks – Spreading of MTM losses and creation of Investment Fluctuation Reserve (IFR)
**Summary:**
This document pertains to a clarification regarding the Investment Fluctuation Reserve (IFR) for Scheduled Commercial Banks. Specifically, it addresses inquiries about whether the IFR, which forms part of General Provisions and Loss Reserves, is subject to a ceiling of 1.25% of total credit risk-weighted assets for inclusion as Tier II capital. This circular clarifies that no such ceiling exists for the IFR. This clarification refers back to circular DBR.No.BP.BC.102/21.04.048/2017-18 dated April 2, 2018, concerning prudential norms for the classification, valuation, and operation of investment portfolios by banks, particularly regarding the spreading of mark-to-market (MTM) losses and the creation of the IFR. Note that the guidelines to which this document refers have been repealed and superseded by the Reserve Bank of India (RBI) Classification, Valuation and Operation of Investment Portfolio of Commercial Banks Directions, 2021. For further information, contact Saurav Sinha, Chief General Manager-in-Charge. The reference number for this clarification is RBI/2019-20/175 DOR.BP.BC.No.42/21.04.141/2019-20, dated March 17, 2020.
Key Entities Referenced
Reserve Bank of India: The central bank of India, responsible for monetary policy and regulation of the banking system.
Classification, Valuation and Operation of Investment Portfolio of Commercial Banks Directions, 2021: A set of guidelines issued by the Reserve Bank of India pertaining to the management of investment portfolios by commercial banks.
Scheduled Commercial Banks: Banks in India that are listed in the Second Schedule of the Reserve Bank of India Act, 1934.
Investment Fluctuation Reserve (IFR): A reserve created by banks to cushion against potential losses in their investment portfolios.
Tier II capital: Supplementary capital of a bank, including items like undisclosed reserves, revaluation reserves, and general provisions.
DBR.No.BP.BC.10221.04.048/2017-18: Reference number of a previous circular issued by the Reserve Bank of India.
Saurav Sinha: Chief General Manager-in-Charge at Reserve Bank of India.
March 17, 2020: Date of a previous circular pertaining to Prudential Norms for Classification, Valuation and Operation of Investment Portfolio by Banks.
The guidelines have been repealed. Please refer to the Reserve Bank of India (Classification, Valuation and Operation of Investment Portfolio
of Commercial Banks) Directions, 2021.
RBI/2019-20/175
DOR.BP.BC.No.42/21.04.141/2019-20 March 17, 2020
All Scheduled Commercial Banks
Dear Sir/Madam,
Prudential Norms for Classification, Valuation and Operation of Investment
Portfolio by Banks – Spreading of MTM losses and creation of
Investment Fluctuation Reserve (IFR)
n
Please refer to our circular DBR.No.BP.BC.102/21.04.048/2017-18 dated April 2,
w
2018 on the captioned subject. a
r
d
2. Some banks have enquired whehther IFR, forming part of General Provisions
t
i
and Loss Reserves, can be reckonWed as Tier II capital only to the extent of 1.25% of
total credit risk weighted assets.
3. It is clarified that there is no such ceiling for IFR.
Yours faithfully,
(Saurav Sinha)
[[
Chief General Manager-in-Charge