Fitch Ratings on Monday said India's bank credit will see strong growth in the current financial year despite the effects of higher interest rates. The agency said the strong loan growth should benefit net revenue, particularly 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.
Fitch forecasts India's real GDP growth at 7 percent for 2022–23. It said Indian banks generally remain open to additional capital-raising to fund growth, despite the rise in rates.
"Private banks are generally better than state banks at capital planning, although moves to raise fresh equity are likely to be opportunistic and incremental," it added.
The rating agency expects system deposits to grow 11 percent in the current and next fiscal years, slower than loan growth.
"Increased deposit rates may put some pressure on banks' margins, but we expect declining credit costs to offset pressures on profitability, including the valuation impact of higher rates on investments, in FY23," it added.
Earlier, Crisil forecast a 15 percent growth in bank credit this fiscal year and next, citing broad-based economic recovery and stronger, cleaner balance sheets.
The agency noted that large lenders have seen corporates flocking to banks for funds for capital expenditures and also for working capital as the demand side of the economy is faring better.
It expects credit growth this year to be driven more by retail and MSME segments, while corporate credit could be the larger contributor next fiscal year.
According to the most recent RBI data, bank credit growth accelerated to 17.2 percent in the quarter that ended September 2022 from 7 percent in a similar quarter of the previous fiscal. The deposit growth rose to 10.2 percent in Q2FY23 from 6.4 percent in Q2FY22.
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