Public sector banks (PSBs) have once again approached the Reserve Bank of India (RBI) to treat investment fluctuation reserve (IFR), that is gains net of tax, as part of Tier-I capital instead of Tier-II.
The central bank, last year, had rejected their plea on the ground that IFR is not a permanent reserve as banks will need to dip into it in case the bond markets tank.
The banks have pointed out that prior to the issue of its circular (dated January 10, 2002) on prudential norms on capital adequacy, the profits from sale of securities, which is credited to the profit & loss account, net of tax was being considered as Tier-I capital.
As per the January 2002 circular, the RBI directed banks to transfer maximum amount of gains realised on sale of investment in securities to the IFR so that they build up a minimum IFR of 5 per cent of their investment portfolio within a period of five years.
Further the PSBs said that if the provision on standard assets and
