With the unwinding of support measures, some restructured accounts might face solvency concerns, with the impact on banks' balance sheets becoming clearer in the upcoming quarters, the Reserve Bank of India said in its annual report.
"As the economy recovers and credit demand rises, banks will need to focus on supporting credit growth while being vigilant of the evolving risks," it said.
It also recommended that banks ensure fresh repayment slippages are arrested and banks' balance sheets are strengthened to avoid future build-ups of stress.
However, banks' gross non-performing asset ratio has moderated to its lowest level in six years, aided by efforts towards recovery and technical write-offs while credit growth has begun to pick up, tracking nominal GDP growth, RBI said.
Its own balance sheet expanded by 8.46% to 61.90 trillion rupees as of March 31 compared with the same time last year. Increases on the assets side came from the rise in foreign investments, domestic investments, gold and loans, while on the liability side the increase was due to the rise in deposits and notes issued.
The central bank also transferred 1.15 trillion rupees into a contingency fund to maintain the risk buffer at the lowest prescribed level, one of the key reasons for the lower surplus transfer or dividend given to the government.
RBI's balance sheet also showed a significant increase in gains made from foreign exchange transactions and interest income on both rupee and foreign securities during the year.
On the macro-economic front, RBI said overall financial conditions remain supportive of a recovery but cost-push pressures from high raw material prices, transportation costs, supply chain bottlenecks will continue to impinge on core inflation.