Shares of Bank of India surged 4.31 per cent, while Yes Bank gained 3.78 per cent, Kotak Mahindra Bank (3.69 per cent), Federal Bank (2.70 per cent), HDFC Bank (2.57 per cent) and ICICI Bank (1.34 per cent).
Led by the gains in these stocks, the BSE banking index rose by 1.88 per cent to settle at 11,770.50.
"Trade deficit for September came to a more than 2 years low levels at USD 6.7 billion. This can be beneficial for the Indian currency as well as controlling CAD. Financial and banking stocks recovered from lower levels and showed strength after this news," said Rakesh Goyal, Senior Vice President, Bonanza Portfolio Limited.
Rising exports and declining imports in September narrowed the trade deficit to a 30-month low of USD 6.76 billion.
The previous low for the trade deficit was USD 3.8 billion in March 2011. The gap was USD 10.9 billion in August.
Exports and imports in September stood at USD 27.68 billion and USD 34.4 billion, respectively.