Co-op banks to create investment fluctuation reserve to deal with market risks

The RBI has directed co-operative banks of all categories to create Investment Fluctuation Reserve (IFR) with a view to guard against unforseen fluctuations in market and remain solvent.

"...with a view to building up adequate reserve to guard against market risks, henceforth, all co-operative banks shall build IFR out of realized gains on sale of investments, and subject to available net profit," the RBI said in a recent notification.

Further, all Urban Cooperative Banks (UCBs), irrespective of their liabilities, will be required to maintain IFR.

As per the notification, all State Co-operative Banks (StCBs) and District Central Co-operative Banks (DCCBs) "shall also be required to maintain IFR on similar lines, minimum threshold in which shall be computed with reference to their investment in Current category".

The RBI also said that with a view to address the systemic impact of sharp increase in the yields on Government Securities, it has decided to grant UCBs (which are not mandatorily required to create IFR) the option to spread provisioning for mark to market (MTM) losses on investments held in AFS (Available for Sale) and HFT (Held for Trading) category for three quarters up to June-2018, only.

The provisioning for each of these quarters may be spread equally over up to four quarters, commencing with the quarter in which the loss was incurred, the RBI added.

The RBI has been watching the performance of co-operative banks closely. Earlier, this month it cancelled licence of Alwar Urban Co-operative Bank, Alwar, Rajasthan as it had inadequate capital as well as earnings. It also failed to comply with provisions of the Banking Regulation Act, 1949.