Mumbai: Brokerage Bank of America Merrill Lynch Tuesday turned positive on state-run banks, including SBI, on expectation of a rate cut by RBI this month-end as well as better-than-expected loan recoveries.
"The upgrades come on the back of a steepening bond yield curve in the anticipation of Reserve Bank cutting rates later this month, stronger-than-expected loan recoveries, and reduced asset quality pressures on the state-run banks," it said in a report, 'Turning the corner on Government banks'.
The brokerage changed the status of SBI Bank of Baroda and Oriental Bank of Commerce to "buy" from "underperform".
The government banks, which underperformed private lenders by 30-50 percent in 2012, may potentially offer 18-23 percent upside in 2013, as the RBI begins to cut rates, said the report authored by the America brokerage's research analysts Rajeev Varma and Veekesh Gandhi.
While SBI is likely to offer an 18 percent return this year, Indian Bank is set to lead the chart with a whopping 30 percent return, followed by BoB and OBC, which are likely to offer 23 percent each. Union Bank is expected to offer a 21 percent return, said the report.
SBI jumped 1.07 percent to Rs 2,493.45 after hitting a high of Rs 2,500, while BoB closed almost flat at Rs 881.50 on BSE Tuesday.
The news had no impact on ICICI Bank as it ended 0.2 percent down at Rs 1,179.30 on a day when the benchmark Sensex gained 51 points, or 0.26 percent.
"Private banks will likely continue to deliver structurally superior earnings and return on equities, especially over the medium term. We were positive on private banks, especially ICICI Bank, HDFC Bank and Yes Bank," the report said.