DBOD No. BP.BC 99 /21.01.002/2001-02

May 3, 2002

All Commercial Banks (excluding RRBs)

Dear Sir,

Monetary and Credit Policy 2002-03
Investment Fluctuation Reserve

Please refer to paragraph 134 of the "Statement on Monetary and Credit Policy for the year 2002-03" on Investment Fluctuation Reserve (IFR) enclosed to Governor's letter No. MPD.214/07.01.279/2001-02 dated April 29, 2002.

2. With a view to building up of adequate reserves to guard against any possible reversal of interest rate environment in future due to unexpected developments, banks were advised vide our circular DBOD No. BP.BC.57/21.04.048/2001-02 dated January 10, 2002, to build up an IFR of a minimum 5.0 per cent of the investment portfolio within a period of 5 years. However, banks were given the freedom to build up IFR to a maximum of 10.0 per cent of the portfolio depending on the size and composition of their portfolio, with the approval of their Board. On the basis of feedback received from banks, it has been decided that IFR should be computed with reference to investments in two categories, viz., "Held for Trading" and "Available for Sale". Thus, it will not be necessary to include the investment under "Held to Maturity" category, which is not meant to be traded, for purposes of computation of IFR.

Yours faithfully,

(M.R.Srinivasan)
Chief General Manager-in Charge