Indian shares rose on Tuesday after the Reserve Bank of India (RBI) said lenders had received 8.45 trillion rupees ($123.05 billion) in deposits, absorbing a substantial amount of the 500 and 1,000 rupee notes that were declared worthless earlier this month.
The amount deposited, announced by the RBI on Monday, raised hopes that the demonetisation process would end sooner than expected, reducing what has been a key constraint for markets.
The government unveiled a scheme on Monday to give tax dodgers another chance to come clean, in a bid to bring billions of dollars worth undeclared income into the mainstream economy.
"The government has succeeded in mobilizing large sum of money under demonetisation, now they are working on giving unaccounted money an opportunity to come into the legal system," said Deven Choksey, managing director, KR Choksey Securities, adding that there has been some help with the stabilization of the rupee.
The Indian rupee was trading at 68.45 against the dollar, after it closed at 68.73 in the previous session.
The broader NSE Nifty was up 0.68 percent at8,181.95 as of 0627 GMT, after hitting its highest since Nov. 16.
The benchmark BSE Sensex climbed 0.64 percent to 26,519.22.
The Nifty Bank Index gained as much as 0.69 percent, while IndusInd Bank and ICICI Bank rose up to 1.35 percent and 0.67 percent respectively. Mortgage lender HDFC Ltd rose as much as 3.07 percent.
A faster end to the demonetisation drive could revive auto sales, according to analysts.
The Nifty Auto Index, which has dropped about 12 percent this month, was up 2.13 percent with Eicher Motors and Maruti Suzuki India as top percentage gainers.
Meanwhile, Tata Steel Ltd hit a two-week high after the company said its British arm Tata Steel UK would enter talks with Liberty House on sale of speciality operations.
Shares of Idea Cellular climbed 4.29 percent after CNBC-TV18 reported that the company plans to sell 100 percent stake in tower arm for $1 billion.
($1 = 68.6725 Indian rupees)