Morgan Stanley maintains 'underperform' rating on SBI

Asset quality pressures will intensify while the flow of bad loans will be lumpy in the fiscal year ending in March 2013

Morgan Stanley has maintained its "underperform" rating on State Bank of India, with a target price of Rs 1,425, after a meeting with the lender's management.

The investment bank says "asset quality pressures will intensify" in the fiscal year ending in March 2013, while the "flow of bad loans will be lumpy."

Investment bank says SBI management indicated gross and net new non-performing loan in Q1 of the fiscal year could be at Rs 5,000 crore and Rs 3000 crore, respectively.

Management expects net interest margins to remain flat quarter-on-quarter in the June quarter, and fall by 10-15 bps to 3.7-3.75 percent in FY2013, while expecting loan growth of around 15 percent, according to Morgan Stanley.

State Bank of India last up 0.7 percent at 2,128.50 rupees. Shares have surged 14 percent as of Tuesday since it reported Q4 earnings on May 18, outperforming the 5.2 percent gain in the NSE index during the same period.