Here's Why BofA Securities Is Bullish On PSU Banks

Among PSUs, the State Bank of India is one of the three choices of the brokerage firm. (Source: Vijay Sartape/NDTV Profit)

BofA Securities is bullish over the structural stories of public sector banks and expects that some cyclical factors are aiding them.

There is room for improvement of foreign institutional investors' positioning and it expects investors to see proof of execution over the next one to three years, according to the brokerage firm's research report issued today.

"We adjust our EPS estimates by 1-15% re-calibrating our NIM and credit cost assumptions, increase POs on higher earnings and moving target multiple up to 1.1-1.2 times on better growth and AQ (asset quality) visibility."

BofA has upgraded the ratings for State Bank of India to 'neutral' as they find relative valuations more attractive after 40% underperformance over the past few years.

It has upgraded the ratings for Bank of India to 'buy', as it finds good risk- reward in the bank and expects more scope for positive surprises in FY26.

The recovery of non-performing assets by the PSBs can last for another two years, according to the report.

Around 10-15% of earnings for many smaller PSBs depend on the NPA recoveries, which may continue till FY26, it said.

The operating expenditure growth for the PSBs is likely to normalise in FY25 to high single-digit levels, the research firm said.

The PSBs are further focusing on fixing product gaps in both the retail and wholesale categories, along with increasing the CASA share through better digital channels and relationship management, the report said.

Here's what BofA has to say about select PSU banks:

Bank Of India: BofA upgrades the rating for BOI to 'buy'. It expects the bank to deliver 1% return on assets in FY25. It has increased the target price for the bank from Rs 125 to Rs 170.
State Bank of India: The brokerage has upgraded the rating for SBI to 'neutral', along with increasing its target price to Rs 800 from Rs 675. Among public sector banks, SBI continues to lead in terms of digital execution.
Union Bank of India: BofA remains positive on the Union Bank's outlook. The bank continues to deliver 1-1.1% of return on assets in the near term, along with building sustainable growth.
Canara Bank: Among other PSBs, Canara Bank's profitability remains best. It delivered 1% RoA for the last four quarters. The brokerage has maintained the bank's rating to 'buy' and increased the target price to Rs 660 from Rs 540.
Punjab National Bank: The research firm has increased the target price for the bank to Rs 90 from Rs 75, and maintained the rating to 'underperformance'.
Bank of Baroda: BofA remains 'neutral' on BoB and has increased its target price to Rs 300 from Rs 275. Further, it remains positive about BoB's operational improvements through FY24-25E.