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With the normalisation of the economic activity post-COVID-19 pandemic, Fitch Ratings on Monday predicted of strong bank loan growth in the current financial year.

Even the high-interest rates of Indian banks couldn't deter the forecast of India's credit growth for this year. The report said that the strong loan growth would add to the net revenue of the country, as it will be coupled with wider net interest margins.

"We see bank credit expanding by around 13 per cent in FY23, up from 11.5 per cent in FY22. The acceleration will be driven by the normalisation of economic activity after the COVID-19 pandemic, and high nominal GDP growth, which we expect to boost demand for retail and working-capital loans," Fitch said in a statement.

India's GDP growth was predicted to be at 7 per cent in 2022-23 by Fitch. It said that to cater to the need of India's rising GDP, Indian banks will remain open to additional capital-raising for the generation of funds and infrastructure, despite high rates.

It also added that private banks are generally a better option than state banks for capital planning. However, the generation of fresh equity will bring opportunity and increments to state banks.

The international credit rating agency has also predicted a rise in competition for deposits over time. Mainly because of higher rates on deposit accounts. There are expectations that system deposits will grow at 11 per cent in the current and next fiscal years, slower than loan growth.

Banks may suffer due to a rise in deposit rates, as it will put pressure on their margins. But ultimately, the declining credit costs will offset pressures on profitability, including the valuation impact of higher rates on investments in the next year.

(With inputs from PTI)

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