High rates not to come in the way of banks’ strong credit growth: Fitch

Fitch Ratings on Monday said that India’s bank credit would see strong growth in the current financial year despite effects of higher interest rates. It added that the strong loan growth should benefit net revenue, particularly as it would 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 per cent in 2022-23. It said that Indian banks generally remained open to additional capital-raising to fund growth despite the rise in rates. 

“Private banks are generally better than State-owned banks at capital planning, although moves to raise fresh equity are likely to be opportunistic and incremental,” Fitch added. 

The rating agency expects greater competition for deposits over time through higher rates on deposit accounts as banks’ liquidity buffers fall in their pursuit of loan growth. 

Fitch expects system deposits to grow by 11 per cent in the current and the next financial years, slower than loan growth. 


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