The purpose of the study was to examine the association between managers’ transformational leadership style and employees’ innovative work behaviour (IWB) through psychological empowerment. We employed survey methodology and collected data by administering a standardised instrument to employees (n = 203) working in public and private sector bank branches in the Delhi-NCR region of India. By applying structural equation modelling, we found that by adopting a transformational leadership style, managers can encourage employees’ IWB. Psychological empowerment partially mediated the relationship between transformational leadership and the IWB of the employees. Additionally, we found that the transformational leadership style is positively associated with the psychological empowerment of employees, and employees’ psychological empowerment is positively related to the IWB of the employees. The study practically iterates that transformational leaders can augment their employees’ innovative behaviour by empowering them.