As the global financial turbulence has had its spill-over effects in the Indian markets, the Central Bank of the country, RBI has asked banks to be vigilant about their deteriorating credit quality.

RBI Deputy Governor Usha Thorat said, "It is likely, during the difficult times, that assets can be impaired. Banks can turn risk aversive. Preventing impairment down the road and safeguarding the gains of last few years' improvement in asset quality should be the cardinal principle of this period."

In the past one year, Indian banks have recorded rising Non- Performing Assets (NPAs) as the financial crisis has become intense. The sectors that witnessed a sharp increase in their NPAs after the credit crunch include textile, garments, auto and pharma.

Throat said that the banks should check the viability of proposals while restructuring the loans of micro, small and medium enterprises (MSMEs). "It is important for banks to establish the viability while restructuring the loans," she said.

The banks should restructure the loans in a manner that preserves the value of the asset by providing timely assistance. It should not make the assets unviable and impaired, said Throat.

In fact some of the banks expect the NPAs to rise in the coming few months because of the slowdown that is prevalent in the economy and therefore RBI on Friday, March 6th asked banks to gear up against their bad loans.