The Reserve Bank on Friday said banks would need to support growth while being watchful of the credit behaviour of entities whose loans were restructured during the pandemic period to arrest slippages.

Banks had extended moratorium on repayment of loans and restructured advances to businesses to help them combat the impact of the Covid-19 pandemic and subsequent lockdowns.

In its annual report released on Friday, the Reserve Bank said the banking sector has witnessed improved financial parameters despite the pandemic.

“There is, however, a need to be watchful of the credit behaviour of the restructured advances and possibility of increased slippages arising from sectors that were relatively more exposed to the pandemic,” it noted.

With the unwinding of support measures, some of the restructured accounts might face solvency concerns, and the impact on banks' balance sheets will become clearer in the upcoming quarters, the report said.

Prudence warrants proactive recognition of any non-viable accounts to activate timely resolution, it added.

“As the economy recovers and credit demand rises, banks will need to focus on supporting credit growth while being vigilant of the evolving risks.”

“Care needs to be taken to ensure that fresh slippages are arrested, and banks' balance sheets are strengthened to avoid future build-up of stress,” the RBI said.