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BofA-ML upgrades state-run banks, SBI stocks gain over 1%

The brokerage changed the status of SBI Bank of Baroda and Oriental Bank of Commerce to 'buy' from 'underperform'

Press Trust of India  |  Mumbai 

Brokerage Bank of America Merrill Lynch today turned positive on state-run banks, including SBI, on expectation of a rate cut by RBI this month-end as well as better-than-expected loan recoveries.

"The upgrades come on the back of a steepening bond yield curve in the anticipation of Reserve Bank cutting rates later this month, stronger-than-expected loan recoveries, and reduced asset quality pressures on the state-run banks," it said in a report, 'Turning the corner on Government banks'.

The brokerage changed the status of SBI Bank of Baroda and Oriental Bank of Commerce to "buy" from "underperform".

The government banks, which underperformed private lenders by 30-50% in 2012, may potentially offer 18-23% upside in 2013, as the RBI begins to cut rates, said the report authored by the America brokerage's research analysts Rajeev Varma and Veekesh Gandhi.


While SBI is likely to offer an 18% return this year, Indian Bank is set to lead the chart with a whopping 30% return, followed by BoB and OBC, which are likely to offer 23% each. Union Bank is expected to offer a 21% return, said the report.

SBI jumped 1.07% to Rs 2,493.45 after hitting a high of Rs 2,500, while BoB closed almost flat at Rs 881.50 on BSE today.

The news had no impact on ICICI Bank as it ended 0.2% down at Rs 1,179.30 on a day when the benchmark Sensex gained 51 points, or 0.26%.

"Private will likely continue to deliver structurally superior earnings and return on equities, especially over the medium term. We were positive on private banks, especially ICICI Bank, HDFC Bank and Yes Bank," the report said.

First Published: Tue, January 08 2013. 19:44 IST
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