IndusInd Bank Ltd, which is in exclusive talks to buy microlender Bharat Financial Inclusion Ltd, settled 2.7 per cent lower after rising more than 5 per cent in the previous session.
"The IndusInd Bank (potential) deal is expected to open up more distribution channels in the banking sector and this expectation is lifting banking stocks," said Sunil Sharma, chief investment officer at Sanctum Wealth Management.
Bank of Baroda and Axis Bank Ltd closed higher 3.20 per cent and 0.52 per cent respectively, while HDFC Bank gained for a sixth straight session, settling with a gain of 0.65 per cent.
Tata Steel Ltd jumped as much as 4.6 per cent - its highest since February 2011 - during the session before closing at a gain of 3 per cent. The surge in Tata Steel came after Germany's Thyssenkrupp AG said talks were in the final stages to merge its European steel business with that of Tata Steel.
ITC Ltd extended its gains to a third session in a row, closing 1.48 per cent higher on the NSE.
Meanwhile, Apple Inc distributor Redington (India) Ltd closed 1.69 per cent higher ahead of the expected launch of "iPhone 8" on the same day.