Citi bullish on SBI, ICICI Bank, remains neutral on BoB

Global brokerage Citi Research on Monday maintained ‘buy’ on State Bank of India with a price target of Rs 375 per share given its strong deposit franchise, well-diversified asset book and large distribution network despite facing significant pain in asset quality and overall growth.

“While there are challenges on execution, the new management does seem to be focused on making operational improvements. We believe SBI will be able to stabilise its key operating parameters namely net interest margins, operating costs, and asset quality slippages going forward,” the brokerage said.

A recent merger of its associate banks with itself should provide the public lender additional leverage to gain market share and higher operational efficiency, Citi said.

The brokerage has also maintained ’buy’ on ICICI Bank with a price target of Rs 450 per share considering an upside in its business on the back of fundamental medium-term operating improvements (margins, business balance, leverage on its franchise), and its improving profitability.

However, the brokerage sees challenges in the bank, especially low returns, weak asset quality and diversified business but the current valuations offer a reasonable risk/return trade-off.

“The Bank’s financial services subsidiaries, particularly insurance, also add meaningful value and complement its core banking business,” Citi added.

For Bank of Baroda, Citi maintained a ‘neutral’ view with a price target of Rs 120 per share.

“BoB is making some progress on strategy and should see gradual Return on equity (ROE) improvements. It is also well capitalised relative to other government banks and has non-performing loans (NPL) coverage that is among the highest for government banks,” the brokerage said.

However, any consolidation among government banks is a key risk for BoB, as it might be required to absorb one or two weaker government banks, added Citi.