BENGALURU - Indian shares closed higher on Wednesday, led by financial and banking stocks, while State Bank of India surged to an all-time high after the country's largest lender by assets reported a record quarterly profit.

The NSE Nifty 50 index ended 0.79% higher at 16,258.80 and the benchmark S&P BSE Sensex rose 1% to 54,369.77.

Analysts said the blue-chip Nifty 50 index's breakout above the key psychological 16,000-level boosted investor sentiment and brought fresh buying into the market.

The Nifty Bank index, which shed more than 3% in the past two weeks, added 2.3% on Wednesday. The Nifty Financial Services Index rose 2.6%. HDFC Ltd and Kotak Mahindra Bank were the top gainers on the Nifty 50 index, rising 4.75% and 3.81%, respectively.

Analysts also said strong quarterly results were aiding sentiment.

Shares of SBI gained 2.3% after the bank's June-quarter profit beat analysts' expectations as bad loan provisions dropped sharply and fee income rose. 

"Corporate results have come in-line with expectations across sectors. While the low base effect is influencing the year-on-year returns reported by large corporates, overall positive traction in the economy is turning out to be promising," Nimish Shah, Chief Investment Officer- Listed Investments, Waterfield Advisors said in a note.

Shares of PNB Housing Finance surged 5% after India's anti-trust agency said on Wednesday it approved acquisition of equity stake by Carlyle entities in the company.

Meanwhile, India's central bank began its three-day policy meeting on Wednesday, where it is expected to leave interest rates at record lows for a seventh straight time on Friday. Markets are keeping an eye on liquidity measures about to be taken by the central bank.

(Reporting by Nallur Sethuraman in Bengaluru; Editing by Shailesh Kuber) ((Sethuraman.NR@thomsonreuters.com; (+91 8061822737); Reuters Messaging: nallur.sethuraman.thomsonreuters.com@reuters.net))