Shares in banks such as the State Bank of India rose 1.2 percent, recovering from an earlier fall of as much as 2.8 percent.
Gains were fuelled by expectations that the Banking Amendment Bill will be passed in Parliament after the government dropped a controversial clause that would have allowed banks to trade in commodity futures.
Among other banks, ICICI Bank gained 0.8 percent, while Bank of India rose 2.4 percent.
Parliament is expected to amend the banking laws that include raising the limit on shareholders' voting rights in public and private sector banks, a step seen largely positive towards the government's reform drive.
Copyright Thomson Reuters 2012