Q1 results preview: Expect healthy loan growth with NIM pressure for banking sector; PSU Banks to outperform Pvt lenders

Indian banks reported significant earnings growth in FY24, with net profit of all listed banks rising 39% YoY to surpass ₹3 lakh crore. However, Q1 FY25 is expected to be softer, characterized by net interest margin (NIM) strain, better loan growth, but weaker deposit and CASA growth. Analysts predict PSU banks will outperform private banks, driven by lower credit costs and NIM impact. Despite strong credit growth, deposit growth lags, widening the funding gap. NIM pressure persists due to repricing, higher deposit costs, and interest income reversals. Asset quality remains stable but with some vulnerability in personal loans and MFI segments. Top picks include SBI among PSU banks.