UBS downgrades SBI to ‘Sell’, cuts target price on credit costs, margins concerns

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State Bank of India (SBI) to ‘Sell’ from ‘Buy’ amid concerns over higher credit costs, narrowing margins and anticipated declines in Return on Asset (RoA) and Return on Equity (RoE) by the financial year 2025. The foreign brokerage has also slashed the target price of SBI to ₹530 from ₹740 earlier. UBS expects retail loan delinquencies to rise, driving up credit costs in FY25.

It also believes repricing of deposits will cap margins near current levels, thereby keeping the net interest income (NII) growth in line with loan growth of 11-12%. SBI’s ROA and ROE are expected to moderate to 0.72% and 11.7% by FY25, driven by lower margins and rising credit costs. Also Read: Adani Ent, Adani Ports, other Adani groups stocks trade lower ahead of Adani-Hindenburg case hearing in SC Moreover, the largest lender in the country, SBI's unsecured loans have grown rapidly by 29% CAGR over FY19-23, and now comprise 10.8% of total loans, which could potentially limit growth or lead to dilution.

SBI's CET-1 capital is at 10.8%, which leaves limited cushion against potentially tighter risk weights on unsecured loans, UBS said. (Exciting news! Mint is now on WhatsApp Channels Subscribe today by clicking the link and stay updated with the latest financial insights! Click here!) “Considering relatively low CET1 against peers, we think potential regulatory tightening on unsecured loans is expected to limit loan growth or trigger dilution. The stock is trading at 1.0x FY25E P/BV, which does not appear expensive, however expected decline in profitability could result in downside," UBS said.