The Reserve Bank of India (RBI) on Tuesday cautioned about loans given to companies in sectors in difficulty such as telecom and may witness rising bad loans.
Banks were asked to put in place a board-approved policy for making provisions for standard assets at rates higher than the regulatory minimum, based on evaluation of risk and stress in various sectors.
"The telecom sector is reporting stressed financial conditions, and presently interest coverage ratio for the sector is less than one," an RBI notification said.
"Board of directors of the banks may review the telecom sector latest by June 30, 2017, and consider making provisions for standard assets in this sector at higher rates so that necessary resilience is built in the balance sheets should the stress reflect on the quality of exposure to the sector at a future date," it said.
"Besides, banks should also subject the exposure to the sector to closer monitoring," it added.
According to RBI, its standard rules for monitoring of loans include periodic reviews of its assets which combine quantitative and qualitative aspects of the loans. These include debt-equity ratio, interest coverage ratio, profit margins of each of the company.