7 reasons why IIFL Securities is bullish on SBI stock over Bank of Baroda

SBI vs Bank of Baroda stock: From loan mix, mobile app, NIM outlook, to asset quality, analysts at IIFL Securities list 7 reasons to be bullish on SBI stock

PSU bank stocks to buy, SBI vs Bank of Baroda: State-owned Bank of Baroda (BoB) has maintained its edge over State Bank of India (SBI), in terms of better returns on assets (RoA), for a third consecutive year. Yet analysts at IIFL Securities prefer the latter over the former public sector bank (PSB) stock.

 

According to the banks' annual reports, Bank of Baroda's average RoA stood at 1.12 per cent over the past three years as against SBI’s 1.03 per cent during this period.

 

Analysts at IIFL Securities, however, caution that the trend could reverse going ahead due to inferior margin trajectory and a higher rise in the credit costs for BoB, resulting in average forecasted RoA of 0.87 per cent versus 0.93 per cent for SBI.

 

"Valuation discount of Bank of Baroda, compared to SBI, is at 25 per cent, which is in-line with the 10-year average. However, this valuation gap is unlikely to narrow, as we expect Bank of Baroda stock to deliver 6 per cent and 17 per cent lower RoA and RoE, on average, compared to SBI," analysts at the brokerage said in a report.  READ STOCK MARKET LIVE UPDATES 

SBI, Bank of Baroda share price targets:

Analysts at IIFL Securities have maintained a 'Buy' rating on SBI stock with a share price target of ₹930. Meanwhile, they have an 'Add' rating on Bank of Baroda stock with a share price target of ₹270 per share.  On the bourses, SBI share price added 0.8 per cent on the BSE in the intraday trade while Bank of Baroda shares gained 0.9 per cent.

 

Here are 7 reasons why IIFL Securities bets on SBI over Bank of Baroda shares:

 

New initiatives:

Citing its first reason, IIFL Securities said State Bank of India introduced customised home loan products, new education loan schemes, actively financed renewable energy projects, and continued to focus on sourcing salary accounts (3,500 new corporate tie-ups and 0.6 million new a/cs opened) in FY25.

 

This helped SBI maintain its leading market share in the government business while revamping its transaction banking/trade finance verticals.

 

BoB, meanwhile, opened 0.9 million new CASA accounts, added 1,800 new clients on its CMS platform and opened 359 specialised MSME branches in FY25.

 

Franchise strength:

According to IIFL Securities, SBI's distribution network, in terms of branches, ATMs and employees, is 3-6x bigger than Bank of Baroda. Further, while SBI has been expanding its network, bank of Baroda has been rationalising its branches and employees following the merger of Dena Bank and Vijaya Bank with it in FY19.

 

In FY25, SBI net added 395 branches while BoB added just 90. Moreover, despite a high base of existing customers (both loans and deposits), SBI added 20 million new customers in FY25 and has 520 million outstanding customers aided by higher digital penetration.

 

Market share:

SBI and Bank of Baroda have maintained their loan market share of 23 per cent and 7 per cent, respectively, over the last five years.

 

Both the banks, however, have lost market share in SME lending (250-370 bps), home loans (90-590 bps) and Agri (40-180 bps), but gained in personal and gold loans.

 

Loan growth:

Over the past three years, Bank of Baroda's loan growth has been, largely, higher than SBI across segments. Moreover, in their loan mix, BoB's share of retail loans, which has been rising, stood at 21 per cent at the end of FY25 but remains lower than SBI's 36 per cent share.

 

Unsecured loan growth slowed down for both (BOB: 21 per cent Y-o-Y, SBI: 3 per cent Y-o-Y in FY25), and constitutes 3 per cent and 12 per cent of their total loans, respectively.

 

Share of core priority sector lending (PSL) loans is materially lower for SBI (28 per cent) as compared to BoB (39 peer cent).

 

"However, we expect loan growth to decelerate for both in FY26, and see limited scope for BoB to deliver higher growth given elevated domestic loan-deposit ratio (LDR) of 82 per cent relative to 70 per cent for SBI," IIFL Securities said.

 

Digital leadership:

According to the analysts, SBI's app (YONO) user base is growing faster. At the end of FY25, SBI YONO users stood at 88 million, up 19 per cent on year, relative to BOB World’s 33 million, up 7 per cent Y-o-Y.

 

In FY26, SBI is expected to launch YONO 2.0. "While BoB continues to develop digital capabilities, it still ranks 4th amongst PSU banks on the EASE 7.0 index vs. 1st for SBI," IIFL Securities noted.

 

BoB's inferior NIM performance may continue:

Both, SBI and Bank of Baroda, witnessed a contraction of 16-19 basis points in reported net interest margin (NIM) in FY25. "We expect the recent rate cuts to drive relatively more NIM pressure for Bank of Baroda due to its higher share of repo-linked loans and lower share of fixed rate loans relative to SBI," it said.

 

Asset quality:

Gross slippages continue to trend lower for both banks, and the gap is narrowing. SBI's slippages and non-performing assets (NPAs) remain superior to BoB in all segments, excluding Agri and corporate.

 

"While both banks are carrying 75 per cent of PCR on NPAs, SBI has higher PCR on total stressed loans at 94 per cent versus 76 per cent for Bank of Baroda," IIFL Securities said.