The foundations of a strong financial system can be laid through strict and uniform prudential norms. These include accounting and classification norms, capital adequacy standards and exposure limits. This can also help minimise any financial crisis that may rock the economy, Ragagopalan said.

Along with prudential measures, banks must ensure that they improve their credit appraisal and monitoring skills. Banks also have to manage the difficult task of staying one step ahead of their clients, anticipating changes in domestic and foreign markets.

At the same time, banks will want to increase funding to new industries and to growth sectors such as service businesses which they are not familiar with. Tocope with all this banks will have to overhaul old methods of looking at companies.

Another key requirement, according to him, is good risk management systems. Risks are multiplying on every side from interest rate and exchange risks to market and credit risks. It is essential that banks have systems in place to recognise, evaluate, anticipate and minimise risks.

Rajagopalan further said that banks must take a more proactive and aggressive approach to corporate governance. They will have to encourage clients to get out of unviable businesses, discourage them from meaningless expansion and press them to improve operational efficiency. Bank must also insist on full and transparent disclosures.

The government and regulators like the Reserve Bank will have to play an active role in tough decisions faced by the Indian banking sector including recommendations for closure or merger.

In addition, banks must conduct analysis in order to prepare themselves for any eventuality like the one that hit the bankingsystem in south east Asia.

Banks have to hold themselves up to even higher standards, because they are best awre of their particular weaknesses, exposures and aread where they need a bigger safety net, Rajagopalan added.