UBS has carried out a review of several financial stocks, downgrading its rating in several cases and cutting most steeply in the case of Bajaj Finance.

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In a note, the research firm said loan growth and asset quality of the financial system will be affected as the economic recovery in the services sector is expected to remain gradual and the lockdown is also likely to remain longer than May 3. The moratorium relief will also play a role in the loss of loan discipline for banks, it said.

"We believe risks are high in the microfinance, unsecured personal loan, SME, 2W (two-wheeler) and new auto segments, although credit losses for mortgages and rural loans could be limited," said the brokerage.

As a result, UBS downgraded Bajaj Finance to 'sell' with price target slashed to Rs 1,600 from Rs 4,600 earlier. Ujjivan Finance was also downgraded to 'neutral' due to asset quality concerns in microfinance, with price target reduced to Rs 200 from Rs 450 previously.

Meanwhile, HDFC's price target was cut to Rs 2,100 from Rs 2,850 while Shriram Transport Finance's was slashed to Rs 1,000 from Rs 1,650 earlier.

A liquidity freeze for the SME (small and medium enterprises) and self-employed segments in the absence of RBI or government support will also impact the GDP and the banks' asset quality, pointed out the report.

Overall, UBS cut loan growth estimates by 8-22 percent in FY21, EPS by 11-65 percent in FY21-22E and price targets by 18-66 percent.