Please refer to paragraph 73 of the "Mid-Term Review of Monetary and Credit Policy for the year 2003-04". Banks were advised vide circular DBOD.No.BP.BC.99/21.01.002/2001-02 dated May 3, 2002, to build up an Investment Fluctuation Reserve (IFR) of a minimum 5 per cent of their investments in the categories "Held for Trading" (HFT) and "Available for Sale" (AFS) within a period of five years. As the risk perceptions of individual banks could differ in accordance with their portfolio composition, banks were also encouraged to build IFR up to a maximum of 10 per cent with the approval of their Boards. Although banks have time up to March 2006 to achieve the stipulated 5 per cent, they are urged to quickly build up IFR so as to be better positioned to meet interest rate risks.

Yours faithfully,

(C. R. Muralidharan)

Chief General Manager-in-Charge