Bank of America Merrill Lynch upgraded State Bank of India, Bank of Baroda, and Oriental Bank of Commerce Ltd to 'buy'.
The investment bank says upgrades come on the back of a steepening bond yield curve in the anticipation of Reserve Bank of India rate cuts, stronger-than-expected loan recoveries, and reduced quality pressures.
BofA Merrill also upgrades its price objectives for private banks, retaining ICICI Bank Ltd as its top pick, and HDFC Bank Ltd and Axis Bank Ltd as its 'preferred' names.
All three banks have 'buy' ratings.
"Private banks will likely continue to deliver structurally superior earnings and RoEs, especially over the medium term," BofA Merrill says in a note dated Tuesday.