Mumbai, July 29: The RBI today threatened to undertake a supervisory review at a few banks that have disbursed credit far in excess of the industry average.

Over the past three years, the central bank has been in an inflation-fighting mode and has often expressed concern about reckless growth in credit.

It has also undertaken various monetary and prudential measures to discipline credit disbursements.

“While there has been some rebalancing and overall correction during 2007-08 in response to policy initiatives, in 2008-09 some banks have expanded credit rapidly in relation to the system level growth, with attendant worsening of their credit-deposit ratios,” the RBI said in its first quarter review of monetary policy today.

A concerned central bank said these developments warranted heightened policy concerns in the interest of overall stability and the quality of financial intermediation.

Asking banks to review their business strategies, the RBI said a key aspect of this review should be a renewed emphasis on credit quality while simultaneously pursuing greater credit penetration and financial inclusion.

It observed that banks should focus on stricter credit appraisals on a sectoral basis, monitor loan to value ratios and generally ensure the health of credit portfolio without encountering undue asset-liability mismatches.

“If necessary, the Reserve Bank would consider undertaking supervisory review of those select banks which are over extended in terms of their credit portfolios relative to their sources of funds,” the central bank said.

Reserve Bank governor Y.V. Reddy said there were three ways of controlling inflation and one of them was through the “transmission mechanism” where aggregate demand was managed through banks. “The transmission mechanism is of concern to us,” he said while reiterating the central bank’s worry that some banks had expanded credit rapidly in excess of growth in the banking system.