The Sensex rose over 250 points while Nifty was firm above 9650.
The Reserve Bank of India urged lenders to initiate bankruptcy proceedings against a dozen companies. The RBI said it had identified the 12 defaulters last week, but did not publicise their names.
"There is a general feeling that non-performing asset (NPA) levels will come down after the RBI order to resolve NPAs of the country," said RK Gupta, managing director at Taurus Asset Management.
Metal shares also witnessed strong buying, with Tata Steel and Hindalco surging nearly 3 per cent. Among other market heavyweights, Reliance Industries and TCS gained over 1 per cent.