In this globalised world it isn't just Europe and American consumers who are struggling with debt and monthly payments, a respected financier from India has warned banks there to be prepared for a rise in the number of loan defaults because the economic downturn.

The chairman of the Bank of Baroda M.D. Mallya warned the banks to maintain the integrity of their investment portfolios in the coming months and to plan for the future. “Defaults in certain portfolios like consumer and personal loans might go up in the months ahead and banks need to be cautious to maintain the quality of their portfolios,” he said.

This view was echoed by State Bank chairman O.P. Bhatt, who warned that a lack of liquidity combined with previous bad lending practices risk causing damage to the Indian financial system.

“Liquidity is a big issue. There is no problem with liquidity at this point in time. But we need liquidity not only in the short-term, but in the long-term as well.” He added.