BofA Securities projects re-ratings for SBI and BoB

BofA Securities expects shares of State Bank of India and Baroda Bank will reassess valuation based on continued improvements in their growth profile. These state-owned banks could also benefit from the investment cycle, the broker said.

The broker has a ‘buy’ rating on both

and Baroda Bank, with target prices of 600 yen and 130 yen, respectively. Shares of SBI were up 0.3% to ₹462.35 on Tuesday, while ending the session 1.44% lower at ₹95.80.

The brokerage said the fiscal year ending March 2022 is set to be a kick-start for state-owned banks as their balance sheets are now healthy enough to start growing again after a long asset quality cycle. Loan growth has recovered, deposit growth has stabilized and asset quality has improved. Bank of America. State-owned banks are now guiding for steady growth – in line with or better than the system, it said.

“PSBs total loan growth in FY22 improved to 8.8% (vs 16% for private banks) – the highest since FY14. More importantly, PSBs growth based on a broader range of segments,” it added.

The brokerage said that core profits for public sector banks have returned to the highest levels seen in the 2014-15 financial year, but the gap with private banks remains wide, posing many challenges. ability to improve. It shows scope to close this gap given the trends that are relevant for public sector banks, such as a higher growth appetite and a better boost from the interest rate cycle.

In terms of content quality, Bank of America Securities The asset quality of public sector banks is better than ever, leading to a sharp drop in bad assets and credit costs. “PSB is now much closer to the level of private banks in terms of network NPA with SBI surpassing them all. The cost of credit for SBI is only about 50 basis points while (is) 200-250 basis points for other PSBs and private banks,” it said.

Bank of America Securities points out that state-owned banks will need to raise capital as growth picks up, but it could become a challenge in current capital markets. Although the banks have not begun planning to raise capital so far, they have only a small surplus to support their targeted growth, it added.

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