RBI Eases CRAR Computation and IFR Requirements for Banks

The Reserve Bank of India (RBI) has announced significant changes to the capital-to-risk weighted assets ratio (CRAR) computation and investment fluctuation reserve (IFR) requirements for banks.  

These changes aim to provide banks with greater flexibility and alleviate operational challenges. 

Changes in CRAR Computation 

On Wednesday, April 8, 2026, the RBI proposed removing the condition that limits the inclusion of quarterly profits in CRAR calculations based on non-performing asset (NPA) provisioning levels. 

Previously, banks could only include quarterly net profits if the incremental provisioning for NPAs did not deviate by more than 25% from the average provisioning across all 4 quarters of the previous financial year. 

With this change, banks can now include quarterly profits in their CRAR calculations without worrying about fluctuations in provisioning levels.  

This adjustment is expected to enhance the capital adequacy ratio for some banks, providing them with more flexibility in managing their capital. 

IFR Requirement Dispensed 

The RBI also proposed to dispense with the IFR requirement for most commercial banks, excluding small finance banks, payment banks, and regional rural banks.  

The IFR serves as an additional buffer against depreciation in the value of investments, subject to mark-to-market (MTM) requirements. 

Most commercial banks already hold capital for market risk and adhere to updated norms for classification, valuation, and management of investments as prescribed by the RBI.  

Therefore, the IFR is seen as an additional and somewhat redundant buffer. The removal of this requirement is expected to streamline operations for these banks. 

Read More: RBI Makes CKYCR Mandatory for Merchant Onboarding, Tightens Rules for Payment Aggregators! 

Revisions for Other Bank Categories 

The RBI is also revising existing guidelines for other bank categories to address operational challenges and harmonise instructions across bank categories.  

These revisions aim to enhance regulatory clarity and consistency. Draft directions will be issued shortly for public consultation. 

Conclusion 

The RBI's recent proposals to ease CRAR computation and dispense with the IFR requirement reflect a move towards providing banks with greater operational flexibility. These changes are expected to improve capital management and streamline regulatory requirements for most commercial banks. 

Disclaimer: This blog has been written exclusively for educational purposes. The securities or companies mentioned are only examples and not recommendations. This does not constitute a personal recommendation or investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

Investments in the securities market are subject to market risks, read all the related documents carefully before investing.