Credit rating agency Fitch Ratings on Wednesday slashed India's growth forecast to 10 percent for the current fiscal year from 12.8 percent estimated earlier due to the slow recovery after the second wave of COVID-19.

The global rating agency said rapid vaccination could support a sustainable revival in business and consumer confidence.

According to Fitch, the challenges for the banking sector posed by the COVID-19 pandemic have increased due to a virulent second wave in the first quarter of the financial year ending March 2022 (FY22).

The agency said the operating environment remains challenging for the banks with limited opportunities for business and revenue growth.

It said problems could escalate if successive COVID-19 waves and lockdowns occur as India's full vaccination rate is still quite low.

"Fitch expects banks to manage the near-term balance sheet pressures on the extended relief as they did in FY21, but there are also risks to their capital and earnings buffers from a protracted asset-quality cycle," the agency said.

"We believe state banks are more at risk given their average common equity Tier 1 is around 600 basis points lower than that of private banks, while the latter's average return on assets is four times higher than state banks."