In a significant relief for the cooperative banking sector, the Reserve Bank of India has proposed key changes to the Investment Fluctuation Reserve (IFR) framework, aimed at easing operational challenges and rationalising compliance requirements.
The central bank has issued draft amendment directions for both Urban Co-operative Banks (UCBs) and Rural Co-operative Banks (RCBs), inviting comments from stakeholders until April 29, 2026.
Under the proposed framework, the requirement for maintaining IFR will now be assessed annually at the balance sheet date, instead of being monitored on a continuous basis. This marks a major shift in compliance methodology and is expected to significantly reduce operational burden on cooperative banks.
As per the draft norms, cooperative banks will continue to maintain a minimum IFR of 5 percent. For UCBs, the reserve will be calculated on investments classified under the Held for Trading (HFT) and Available for Sale (AFS) categories. In the case of RCBs, the requirement will apply to investments under the Current category.
Importantly, UCBs will also have the flexibility to maintain a higher level of IFR depending on the size and composition of their investment portfolio, subject to approval by their Board.
The RBI noted that the changes have been proposed in view of operational constraints faced by banks in maintaining IFR levels under the existing framework. The revised approach is expected to improve liquidity management and provide greater operational flexibility to cooperative institutions.
By shifting to a year-end assessment model, the central bank aims to strike a balance between prudential safeguards and ease of compliance.
The proposed amendments also reflect RBI’s broader effort to streamline regulatory norms and adopt a more pragmatic, risk-sensitive approach for the banking sector.
Overall, the draft directions signal a move towards a more flexible regulatory regime, offering timely relief and clarity to cooperative banks navigating investment-related compliance requirements.
