The BSE Sensex rises after a lower-than-expected June quarter current account gap boosts sentiment, though a U.S. government shutdown continues to weigh. The Sensex and the broader Nifty gain 0.7 percent each.
Bank shares rise after the RBI said it would buy up to 100 billion rupees of bonds via open market operations on October 7, sparking gains in bonds.
Lenders are the biggest holders of government bonds and the RBI's rate hike last month had raised concerns about the holdings.
ICICI Bank gains 2.4 percent, while HDFC Bank is up 2.3 percent.
Tata Communications surges 6.2 percent after South Africa's Vodacom Group said on Monday it was in exclusive talks to buy Tata's unlisted local unit, Neotel, in a potential $590 million deal.
Maruti Suzuki shares gain 1.3 percent on higher-than-expected sales in September.
However, Hindustan Unilever shares fall 1.6 percent after its parent company Unilever warned that a slowdown in its emerging markets accelerated in the third quarter.