UBS gets constructive on top PSU lenders, upgrades SBI to ‘Neutral’, BoB a ‘Buy’

UBS upgrades SBI to ‘Neutral’, BOB to ‘Buy’; sees better growth outlook

Leading brokerage UBS has revised its ratings on two major PSU banks, upgrading State Bank of India to ‘Neutral’ from ‘Sell’ and Bank of Baroda to ‘Buy’ from ‘Neutral’, citing stabilizing metrics and more attractive valuations behind the upgrades.

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UBS said the recent policy developments and a stronger liquidity position are promising signs for SBI. The stock has seen a modest gain of around a percent in the past year compared to Bank Nifty’s 8% rise.

The largest PSU lender is expected to benefit from tax rebate in the budget and the likely rollout of the Eighth Pay Commission recommendation. UBS said SBI’s liquidity has improved, reporting a surplus of about Rs 8 lakh crore in March, in contrast to a peak deficit of Rs 3.3 lakh crore earlier. UBS also raised its earnings per share (EPS) estimates for SBI by 3-5 percent, however, it remains cautious due to SBI’s relatively low Common Equity Tier I (CET I) ratio of about 11% compared to peers like HDFC Bank (17.5 percent) and ICICI Bank (16 percent).

UBS said while there are positives, the balanced risk-reward profile justifies the ‘Neutral’ stance, with a revised price target of Rs 840 per share, up from the previous Rs 760.

UBS upgraded Bank of Baroda to ‘Buy’, pointing to a stabilizing outlook and favourable valuations. Although BoB has faced challenges like weak NII growth and sluggish loan expansion, UBS sees reasons for optimism. Loan growth, which has remained below 12% YoY, is expected to pick up pace, supported by a healthier mix of retail loans and stable corporate asset quality.

Additionally, BoB's liquidity ratios—such as a strong LCR of around 130% and an LDR of about 83%—are likely to support future loan growth, UBS said. The note said that recent correction of around 16% in BoB's stock price makes it attractively valued, trading at 0.8x Sept FY26e Price to Book Value (P/BV). The brokerage has set a revised price target of Rs 290 per share, up from Rs 270.

The recalibrated outlook on SBI and BoB reflects a nuanced view by UBS of the public sector banking space, highlighting both challenges and potential catalysts for growth.