SBI shares could rally nearly 40% as Motilal Oswal sees upside on the bank stock

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State Bank of India continues to strengthen its balance sheet and improve its return ratios. The management’s focus has been on building a granular, high-quality loan portfolio, while maintaining a strong focus on underwriting, which has aided a sustained turnaround in operating performance, highlighted brokerage house Motilal Oswal in a note. 

SBI remains well positioned to withstand MTM losses in its treasury portfolio as the rate environment hardens further. It has booked relatively lower treasury gains over prior years as bond yields stood benign and remains insulated to treasury losses till G-Sec yields do not surpass 6.9%. A conservative stance with respect to booking treasury gains ensured that the bank is better placed v/s peers in a rising rate environment while duration of the portfolio too has improved to 1.97 years in 3QFY22,” the note stated.

The bank has reported a RoE (calculated) of around 12.7% in 3QFY22 – the highest since AQR commenced in FY16 – and appears well positioned to surpass 15% RoE in the medium term. The brokerage has maintained its Buy rating on the PSU bank stock with a target price of 675 per share, implying nearly 40% upside potential from current levels.

“Asset quality has been resilient over the past few quarters, aided by improved underwriting and significant mobilization in customer engagement by the recovery team. PCR has improved to 71% (89% in the Corporate book). This, coupled with controlled restructuring (1.2%) and a low SMA book (0.2%), will drive a sustained reduction in credit cost (below its long-term average),” the note stated.

SBI shares have surged about 37% in a year’s period, whereas it is up more than 4% in 2022 (year-to-date or YTD) so far.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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