CITI recommends 'buy' for Bank of Baroda but 'sell' for SBI and PNB — here's why

Brokerage firm CITI, while offering insights and recommendations on public sector undertaking (PSU) banks, has given a 'buy' rating to Bank of Baroda (BoB) with a target price (TP) of ₹290. But it rated State Bank of India (SBI) and Punjab National Bank (PNB) with a 'Sell' recommendation with target price of ₹600 and ₹83 respectively.

The brokerage suggests that while the overall growth in PSU banks has revived, they still lag behind the industry average.

In the PSU segment,  Loan-to-Deposit Ratios (LDRs) have expanded by 8-12 percentage points to reach 73-80%.

The Gross Non-Performing Assets (GNPAs) and slippages have shown significant improvement, more than halving.

Credit cost has been reported at less than 2%, indicating a positive trend in asset quality.

Despite the improvements, the Net Interest Margins (NIMs) remain modest.

However, there is a noteworthy achievement in the Return on Assets (RoA) trajectory, breaching the 1% mark for most PSU banks, except for Punjab National Bank (PNB) and Bank of India (BOI),  Citi said.

The report highlights that the yield improvement has outpaced the rise in deposit costs, contributing to the positive performance of the PSU banks covered in the analysis.

This comes at a time when equity shares of PSU banks have seen a sharp outperformance, with the Nifty PSU Bank Index alone has delivered around 162% returns since March 2022.

According to Motilal Oswal Securities, with robust balance sheet liquidity, PSU banks are well-positioned for healthy growth and resilient margins.

Capital raised from the market positions them for potential gains in corporate demand post general elections, supporting sustained performance and sector re-rating in a conducive macro-environment, said another brokerage — Motilal Oswal.

At the time of writing this report, Bank of Baroda shares were trading marginally lower at ₹260.75 apiece on the BSE.

On the other hand, SBI and PNB shares were trading marginally lower at ₹741.75 and ₹120 on the BSE respectively.