11 Mar , 2024 By : Debdeep Gupta
Bernstein downgrades SBI on the limited upside, and predicts the switch to private lenders, Bernstein sees a less promising trajectory for public sector banks as they struggle with weaker deposit growth and much lower liquidity buffers resulting in weaker earnings growth compared to private banks.
Bernstein downgraded shares of the State Bank of India to 'market-perform' citing limited upside and raised its target price for the stock to Rs 780 from Rs 710 on the bank's willingness to improve its capital levels. The broking firm also highlighted factors that would drive underperformance in public sector banks, compared to their private peers.
At 10.34 am, shares of SBI traded 0.1 percent higher at Rs 788.95. The stock has gained over 33 percent in the past six months.
Bernstein said that although public sector banks have outshone private lenders in the past three years, going ahead, investors should switch to private sector banks. The broking firm sees a less promising trajectory for state-run banks as they struggle with weaker deposit growth and much lower liquidity buffers resulting in a weaker earnings growth compared to private banks.
Bernstein said that the liquidity headroom is a lot lower than what the loan-to-deposit ratio might suggest, given the higher investments for public banks are a result of higher deposits and cannot be reduced to be on par with private banks.
Aggressive pricing in loans and deposits by public banks is forcing a growth-margin tradeoff that will result in muted earnings growth. So, even if public sector banks squeeze out the remaining liquidity buffers to match growth, the higher loan growth will not translate into earnings growth, said Bernstein.
The brokerage firm said that with the recent rally, the market cap to pre-provision operating profit (PPOP) ratio for public banks is more than 0.6X that of private banks, despite their deposit growth rates remaining less than 0.6X of private banks.
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