In Q4FY15, though optically PSU banks' profitability took a severe beating, better-than-expected asset quality shone through, said Edelweiss Research. "Even though restructuring was higher, it toed the expected line-last quarter of RBI dispensation."

''While asset quality has shown signs of stabilisation, however, we believe a meaningful improvement will be gradual and hinge on performance of lumpy accounts in key stress segments; NPLs from restructured book; and off take under 5:25 scheme. Growth during Q4FY15 continued to be below trend, with focus on retail, agri and MSME (RAM) segments which aided capital conservation. Also, lower staff expenses ably pillared profitability as banks had adequate wage hike provisions,'' Edelweiss said.

''Taking cue from government's actions, higher capital constraints and disproportionate risk, we remain cautious on mid-sized PSU banks. However, strengthened liability franchise, government support and curtailed opex in conjunction with tailwinds of gradual macro improvement and attractive current valuations, imply limited downside for large PSU banks. We prefer SBI, BoB and PNB, in that order,'' concluded Edelweiss.

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