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Indian banks look set to reward shareholders with the highest dividend in at least seven years.

The country's banks are forecast to take their share in aggregate payout across all sectors to 13% for the year ending March 31, 2024, according to S&P Global Market Intelligence. This is up from 12 per cent for the fiscal year ended March 31, 2023, and 9 per cent in the year ended March 31, 2022.

This is a sharp rebound from just 1 per cent in 2020, when the Reserve Bank of India asked lenders to conserve cash and suspend dividend payments due to COVID-19. HDFC Bank which declared a special dividend to commemorate 25 years of its operation, was the only major lender to make a payout for 2020. Indian banks' share in aggregate dividends stood at 7.6 per cent in the fiscal year ended March 2017 and 5 per cent each in the following two pre-pandemic years, according to Market Intelligence data.

"Banks remain well-positioned to capitalize on opportunities in the Indian economy and banking industry," said Tusharika Aggarwal, a dividend forecasting research analyst at S&P Global Market Intelligence.

"India's brisk economic activity will likely "sustain high credit growth, resulting in excellent earnings forecasts for Indian banks," Aggarwal said.

Several Indian banks recently reported record net profits, thanks to rising interest rates and strong credit growth as the country's economy recovered from the pandemic.

Banks, especially state-owned, have also reduced their bad debts and improved financial metrics such as capital-to-risk-weighted assets and common equity Tier 1 ratios.

The system wide gross nonperforming asset ratio fell to 3.9 per cent in March, the lowest in 10 years, according to the Reserve Bank of India (RBI).