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RBI monetary policy: Key implications for Banking sector

ICICIdirect Research 10 Apr 2026 DISCLAIMER

In the recent monetary policy, the Reserve Bank of India (RBI) has proposed key regulatory changes aimed at improving capital efficiency and enhancing balance sheet flexibility for banks.
One of the key regulatory changes is the proposed removal of restrictions on inclusion of quarterly profits in CRAR computation. Earlier, banks were required to ensure that incremental NPA provisioning did not deviate by more than 25% of the average of the previous four quarters to include interim profits as regulatory capital. The relaxation of this condition will allow banks to more efficiently incorporate earnings into capital, thereby improving reported capital ratios (CET-1/CRAR) and enhancing their ability to support incremental loan growth.
Secondly, RBI has proposed to dispense with the Investment Fluctuation Reserve (IFR) requirement for commercial banks. IFR was maintained as an additional buffer against mark-to-market losses on investment portfolios, typically 2% of holdings in Available for Sale (AFS) and Held for Trading (HFT) book. Given that banks already maintain capital for market risk and follow revised valuation norms, removal of IFR is expected to release excess buffers and improve capital efficiency. This could provide a cushion for banks to absorb anticipated treasury losses and potentially unlock capital, thereby supporting return ratios and balance sheet expansion.
 

 

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