The Reserve Bank of India (RBI) on Wednesday decided to scrap the investment fluctuation reserve (IFR) which banks were required to maintain as additional buffer to hedge against depreciation in the value of investments, subject to mark-to-market (MTM) requirements.

The central bank’s other step, also aimed at easing capital requirements for banks, is to allow quarterly profits of banks to be added to the calculation of capital adequacy levels. 

Currently, banks are permitted to include their quarterly net profits in the calculation of their capital to risk-weighted assets ratio (CRAR). However, this is subject to incremental provisions for non-performing assets (NPAs) at the end of any of the four quarters of the previous financial year, provided they have not deviated by more than 25% from the average of the four quarters.

In a review, it is proposed to dispense with this condition. The draft amendment directions in this regard will be issued for public comments shortly, the statement on developmental and regulatory policies said.