State Bank of India stock received a rating upgrade to ‘neutral’ from ‘sell’ from UBS as multiple triggers are set to improve earnings. The target price has also been increased from Rs 760 to Rs 840, implying an upside of 7.8% over the previous close.

Analysts at UBS expect improved liquidity, income tax rebates, and the eighth pay commission recommendations to boost SBI’s loan and deposit growth. The last two factors are also “incrementally positive” for SBI customers.

On April 2, the banking system liquidity was in surplus of Rs 1.93 lakh crore.

The government in January approved the establishment of the 8th Central Pay Commission to revise the salaries and benefits of Central Government employees and pensioners. UBS projects base case potential wage bill for the government to increase at around Rs 4.5 lakh crore during 2026-28.

The brokerage has raised its earnings per share (EPS) estimate for SBI by 3-5%. However, it sees limited upside to SBI’s core operating income (PPOP) to assets ratio, which is expected to remain around 1.5%, significantly lower than the 2.8%-3% ratio of private sector peers. This constraint is likely to cap any substantial re-rating of the stock.

Loan Growth, Lower Costs

Analysts expect limited risk to SBI’s net interest margin, anticipating a decline in the cost of deposits and a higher proportion of Marginal Cost of Funds-Based Lending Rate (MCLR) to support the bank in a rate cut cycle.

UBS has raised its loan growth estimates by 100 basis points for FY26 and FY27 to 14%, supported by a moderate loan-to-deposit ratio (around 77%). Additionally, UBS expects SBI’s cost of deposits to decrease slightly as liquidity becomes surplus and has reduced its credit cost estimate by 5-10 basis points.

The brokerage has identified key risks to its outlook for SBI, citing greater competitive intensity in the banking sector and SBI’s relatively low Common Equity Tier 1 (CET1) capital ratio of around 11%. This compares unfavorably to HDFC Bank’s 17.5% and ICICI Bank’s 16%. CET1 is considered the highest quality of regulatory capital.

Shares of SBI closed 0.43% higher at Rs 779.2 on Thursday, compared to a 0.42% decline in the benchmark BSE Sensex.

. Read more on Markets by NDTV Profit.UBS expects SBI’s cost of deposits to decrease slightly as liquidity becomes surplus and has reduced its credit cost estimate by 5-10 basis points.  Read MoreMarkets, Notifications, Business 

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