Indian shares bounced back after two days of losses on Thursday, led by lenders such as State Bank of India on expectations that the government would soon reveal details of a recapitalisation plan.
Reserve Bank of India Governor Urjit Patel said on Wednesday the government would "in coming days" detail how it plans to inject an announced $32 billion into state-run lenders, which was announced in October.
Meanwhile, an RBI order mandating banks to lower the merchant discount rate they charge on debit cards did not affect sentiment.
However, broader gains were capped ahead of elections in the western state of Gujarat due this weekend, in a critical test for Prime Minister Modi.
Polls indicate a victory for the ruling Bharatiya Janata Party (BJP), but with a greatly reduced majority. Results are due later this month.
"Today is largely seen as a corrective recovery in the market because it had gone into an oversold territory," said Deven Choksey, promoter, KR Choksey.
"Markets will now look out for the Gujarat election outcome. There may be some recovery in the markets ahead of the earnings season and the government budget next month," he added.
The broader NSE Nifty was up 0.61 percent at 10,105.55 as of 0638 GMT, while the benchmark BSE Sensex was 0.54 percent higher at 32,773.60.
The indexes had fallen in six of the previous seven sessions.
The Nifty PSU bank index gained as much as 1.6 percent, with State Bank of India and Bank of Baroda Ltd rising more than 1 percent each.
GAIL (India) Ltd, the top gainer on the NSE index, rose as much as 5.1 percent to a record high.
IRB Infrastructure Developers Ltd slid as much as 6.1 percent after the company said the Central Bureau of Investigation has filed charges against it over alleged illegal purchases of government land.