RBI’s IFR Move Frees Bank Capital, But Treasury Risk Stays In Play

India’s banking sector may get a capital lift after the proposed IFR removal, but the trade-off is sharper exposure to bond-market swings and treasury losses.

1. Banks may get access to trapped reserves if the IFR requirement is removed, with estimated capital release of ₹40,000 crore to ₹60,000 crore and a possible 20 bps lift in capital ratios.
    
2. The earlier framework had required banks to keep IFR at 2% of AFS and HFT portfolios. The fresh proposal signals a shift towards relying more on existing capital and valuation rules.

India’s lenders are looking at a direct capital benefit after the proposal to do away with the Investment Fluctuation Reserve, or IFR, for commercial banks. Existing IFR balances may be moved into Tier 1 capital or other reserves, which can improve lending capacity without fresh equity raising. Reuters reported this proposal on April 8, 2026, while Business Standard and The Economic Times said the step could support banks’ capital position at a time when treasury pressure has risen.

Capital Relief For Banks, But Treasury Risk Could Rise

The short-term gain is balance-sheet flexibility. The risk is that banks will no longer have a dedicated reserve against mark-to-market shocks from rising bond yields. That concern has become sharper because the 10-year government bond yield rose to 7.04% at end-March 2026 from 6.59% at end-December 2025, according to The Economic Times.

A quick look at the main numbers shows why the proposal is drawing attention across the sector.
 

That means the proposal is not just a technical treasury tweak. It can affect capital buffers, loan growth, and how banks handle future bond volatility. LoansJagat’s April 6, 2026 report on the policy backdrop had also flagged that borrowers were watching the 5.25% repo-rate setting and the wider lending environment closely.

How It Could Reach Borrowers And Depositors?

For the public, the first effect is indirect. If banks get more usable capital, they may be better placed to grow retail and corporate loans without immediately tapping markets for fresh funds. That can help credit flow, especially when funding conditions are tight. Reuters said the proposal lets banks transfer the outstanding IFR balance to statutory reserve, general reserve, or profit and loss balance.

The concern is on the treasury side. Rising yields can still hit bank investment books. Without a dedicated IFR cushion, some lenders may face more earnings volatility in quarters when bond prices turn weak. That does not automatically mean higher EMIs, but it can affect profitability and capital planning.
 

The previous chain of events gives the proposal more context.

What Experts Are Saying And What Banks Need To Do?

The Economic Times reported that CareEdge’s Sanjay Agarwal expects gains of ₹40,000 crore to ₹60,000 crore, while ICRA’s Karthik Srinivasan said at least ₹40,000 crore could become available for lending. Reuters also noted that the change is part of a wider easing in capital adequacy treatment.

The practical answer for banks is tighter treasury management and closer duration control. If the reserve buffer goes, lenders will need stronger monitoring of bond portfolios and more cautious allocation between profit growth and capital preservation.

Conclusion

The proposal gives banks more capital room at a time when treasury pressure has risen.
But the gain comes with a sharper need to handle bond-market volatility carefully.