The Sensex ended 162 points lower at 34,184 while Nifty settled at 10,492, down 61 points. The Nifty Bank index fell over 1 per cent.
MSCI's broadest index of Asia-Pacific shares outside Japan slipped 1.06 per cent.
The weak spell in domestic markets lingered on apprehensions over state-run banks after the finance ministry set a 15-day deadline for banks to take pre-emptive action on operational and technical risks, following a $2 billon fraud at Punjab National Bank.
The Department of Financial Services also ordered state-run lenders to comb through their bad loans of more than 50 crore for potential fraud.
"There are many loans which are more than 50 crore and that could be a problem now, but it is definitely a good step in the long run."
Investors are also looking out for key domestic economic data this week including Oct-Dec gross domestic product (GDP) due later in the day. A Reuters poll forecast GDP expansion at 6.9 per cent, the fastest in 2017.
However, the information technology stocks eked out some gains
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