Despite higher interest rates, bank credit in India will see strong growth in the current financial year and this will have a positive impact on net revenue and interest margins of the lenders, global rating agency Fitch said on Monday.

 Fitch expects bank credit to expand by around 13% year-on-year in FY23, up from 11.5% a year ago.

 “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," the rating agency said in a statement.

Fitch forecasts India's real GDP growth at 7% in 2022-23. For catering to the need of India’s rising GDP, the rating agency said Indian banks generally remain open to additional capital-raising to fund growth, despite the rise in rates.

The rating agency expects greater competition for deposits over time. As banks' liquidity buffers fall in their pursuit of loan growth, higher rates on deposit accounts will be on offer.

Fitch expects system deposits to grow 11% in 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.