Capital-raising will be a key theme for Indian banks, as asset-quality pressures gradually stabilise and banks look to revive credit growth in support of a recovering GDP outlook, according to Fitch Ratings.

However, it added, there will be challenges for state-owned banks in particular, given weak core capitalisation and expectations of slow earnings recovery due to high credit costs, the report added.

State banks' large stressed asset stock should remain an overhang on banks' equity valuations for the foreseeable future, although the state's expected capital injection will provide a critical buffer for the near term.

Fitch believes that the banks will have to conduct much more capital-raising to pursue sustainable growth rates while achieving Basel III requirements and cushioning balance-sheet stress at the same time.