| In FY 04-05 banks had to apply a capital charge on the price risk of their trading portfolio and in FY 05-06 a similar charge will have to be attached to their available for sale book as well. |
| "With the capital charge on market risk coming into force even on the available for sale category, IFR which was created for the same purpose becomes redundant. We are requesting the RBI to at least consider IFR as Tier I capital since it is not being efficiently utilised now," said the treasury head of a PSU bank. |
| Currently IFR is part of Tier II capital. Banks through FIMMDA are putting pressure on the central bank to classify IFR as Tier I capital since Tier I capital is always superior to Tier II capital. |
| While Tier I capital is equity, retained earnings and shareholder funds, Tier II capital is part debt, preference capital, cumulative perpetual preference share, revaluation reserve, sub-ordinated bonds, general provision and hybrid debt capital. |
| Over the last few years, RBI urged banks to build up an IFR of up to 5 per cent of the total trading and available-for-sale book. Now all banks have IFR way above 5 per cent since their trading and 'available for sale' books have been deliberately reduced. |
| Said a banking analyst, "IFR is no different from a reserve since it was created by setting aside earnings. Logically it makes perfect sense to treat the IFR as Tier I capital since it has all the characteristics of Tier I capital." |
| Earlier banks had in vain urged RBI for permission to use IFR to provide for the dip in the value of securities at the time of transfer of g-secs from the trading basket to the held to maturity basket. |
| Most banks conducted the transfer and shielded themselves from further interest rate movements. |
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