Indian shares were trading higher on Monday with the country's biggest lender, State Bank of India, rising after it introduced a 2-tier savings bank interest rate while investors awaited a rate cut by the central bank later this week.
The Reserve Bank of India is expected to cut interest rates when it meets on Wednesday, a Reuters poll showed, responding to an inflation rate running well below target, which had eased to its slowest pace in over five years in June.
"We expect the policy committee to lower its natural bias to be cautious and lower policy rates by 25 bps this week," said DBS Group Research in a note.
"Investors are always interested in rate cuts and have been expecting a rate cut for quite some time now," said Sunil Sharma, chief investment officer at Sanctum Wealth Management.
The broader NSE Nifty was up 0.27 percent at 10,041.90 as of 0653 GMT, while the benchmark BSE Sensex was 0.39 percent higher at 32,436.25.
Both indexes were set for their sixth monthly rise in seven and their biggest monthly gain since March 2016.
State Bank of India rose as much as 4.8 percent to its highest level since May 19, after it revised its saving bank rate, which the lender said would help it maintain its MCLR at existing rates.
The Nifty PSU bank index, which spiked after SBI's announcement, rose as much as 4 percent to hit its highest in over two months.
Shares of Larsen & Toubro rose as much as 4 percent, after having posted a 46 percent rise in quarterly profit on Friday.
Meanwhile, the Nifty pharma index declined as much as 1.8 percent, falling for a seventh session in eight, hitting its lowest level since July 5.
Pharmaceutical stocks are likely to recover gradually until evidence comes through that the U.S. health regulator is working to lift sanctions on product launches, Sharma said.
Dr. Reddy's Laboratories Ltd and Sun Pharmaceutical Industries Ltd fell as much as 3 percent each.
(Reporting by Jessica Kuruthukulangara in Bengaluru; Editing by Sunil Nair)