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The Reserve Bank of India (RBI) on Tuesday barred all lenders from issuing letters of undertaking - a form of credit guarantee at the heart of a major fraud - as PNB disclosed its total exposure in the case had risen by another $145 million (Rs 942 crore). Punjab National Bank said last month it had been defrauded of about $2 billion.
PSU banking stocks came under selling pressure. In afternoon deals, Punjab National Bank shares were trading 2 per cent lower, SBI was down 0.8 per cent and Bank of India down 1.5 per cent. (Also read: Yes Bank rises, while most banks slide on RBI's LoU diktat)
At 12:38 pm, 40 stocks on the 50-scrip NSE Nifty were trading in the negative zone.
Indian Oil, Bharti Infratel, Hero MotoCorp, Adani Ports and ICICI Bank - trading between 1.6 per cent and 2.8 per cent lower.
"The selling in banking stocks on rising delinquencies along with RBI's move to ban LoUs and a weak international market is weighing on domestic stocks," said Saurabh Jain, assistant vice president of research at SMC Global Securities. "There is not much confidence in the market."
Bucking the broader trend, Fortis Healthcare Ltd rose as much as 5.5 percent on reports that IHH Healthcare Bhd is set to launch an open offer to buy non-promoter shares of the company in the next few days.
Asian shares fell amid fears of rising US protectionism.
MSCI's broadest index of Asia-Pacific shares outside Japan stumbled 0.71 per cent.
In the United States, President Donald Trump fired his Secretary of State on Tuesday and sought to impose hefty tariffs on Chinese imports.
The combination left investors scurrying for safety as global equities took a knock.