UBS downgrades SBI rating to Sell; target price cut to Rs 530

SBI Ratings: For the first time, brokerage firm UBS has downgraded SBI's rating from Buy to Sell. UBS has also cut the target price from Rs 740 to Rs 530, indicating their bearish outlook on the bank's stock performance.

Why Sell Rating?

While expressing growing concerns about the bank's future performance, UBS said that SBI's best financial metrics may already be in the rearview mirror. They predict that return ratios will likely peak in FY24 and expect a decline in FY25.

UBS has forecasted that SBI's credit costing will increase in FY25 due to rise in retail loan delinquencies, particularly in the unsecured loan segment. As per the brokerage firm, the credit cost may go up to 85 bps in FY25, compared to 56 bps in FY23 and their previous estimate of 65 bps for FY24.

The analysts also anticipate the SBI margin to be capped near current levels mainly due to factors such as rising credit costs and a challenging economic environment. As per UBS, the expectations are that SBI's Return on Assets (ROA) and Return on Equity (ROE) will moderate to 0.72% and 11.7%, respectively.

"SBI's Common Equity Tier 1 (CET1) capital ratio stands at 10.8%, leaving limited room for manoeuvre in the event of regulatory tightening," UBS said

SBI Shares

Meanwhile, SBI shares fell about 2% after the opening and is trading 7% below its 52-week high. However, UBS has also noted that the stock had outperformed the broader banking index by approximately 33% since February 2020