The 30-share index commenced the day's trade weaker by a whopping 368 points from its previous close at 19,665.57. It, however, trimmed some of the losses during the day and closed lower by 183.25 points, or 0.91 per cent, at 19,851.23.
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Similarly, the wide-based National Stock Exchange index Nifty lost 75.55 points, or 1.25 per cent, to close at 5,955.25. Also, SX40 index, the flagship index of MCX-SX, closed 85.33 points, or 0.71 per cent lower at 11,854.7.
Brokers said the trading sentiment, mainly in banking and financial sector stocks, was dampened after RBI announced a slew of measures to curb rupee's volatility late last night, including hiking the lending rates for banks and sucking up of Rs 12,000 crore, to make the currency dearer.
This also raised concerns of RBI increasing interest rates in its first quarter monetary policy review later this month, they said, adding that a weakening trend in the overseas markets as German investor confidence unexpectedly dropped, also hit the trading sentiment.
Meanwhile, rupee appreciated by a hefty 68 paise to 59.21 against the dollar intraday today.
Out of the 30 Sensex components, 17 stocks ended in the red led by country's largest private sector lender ICICI Bank tanking 5.61 per cent to Rs 1,003.20, followed by country's largest lender SBI (4.57 per cent) and mortgage major HDFC (3.88 per cent).
Among major losers from the banking pack on the BSE were YES Bank (9.78 per cent), Oriental Bank of Commerce (8.95 per cent) and Canara Bank (8.64 per cent).
Sectorwise, interest-rate sensitive realty sector index suffered the most, falling 5.84 per cent to 1,457.29, followed by bankex (4.83 per cent to 12,821.09) and capital goods (2.23 per cent to 9399.05).
Markets rattled on RBI measures; Sensex down 183 pts as banks hit
(NU) BSE Sensex fell nearly 1 percent (183.25 pts) on Tuesday, snapping a three-day winning streak, as lenders such as Yes Bank and other financial firms slumped after the Reserve Bank of India (RBI) raised short-term interest rates in a bid to curb the Indian rupee's slide.
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Late on Monday, the Reserve Bank of India raised short-term borrowing costs, restricted funds that banks could access and announced a 120 billion rupee ($2 billion) bond sale as it sought to create demand for the rupee, which hit a record low last week.
The central bank's measures are seen hurting growth, while the tightening will push back lending rate cuts.
Bank of America-Merrill Lynch reduced India's fiscal year 2013/14 growth forecast to 5.5 percent of the gross domestic product from 5.8 percent after the central bank's liquidity measures, it said in a note on Tuesday.
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"Higher short-term rates and expectations that policy rates would now be cut with a lag may lead to some tinkering down of estimates," said Aneesh Srivastava, chief investment officer at IDBI Federal Life Insurance.
The benchmark BSE index fell 0.91 percent, or 183.25 points, to 19,851.23, closing below the key 20,000 level.
The broader NSE index fell 1.25 percent, or 75.55 points, to 5,955.25, marking its biggest single-day fall since July 3. Lenders dependent on short-term wholesale funding such as Yes Bank Ltd will be most affected by the central bank's measures to curb liquidity, analysts said.
Yes Bank slumped 9.9 percent, while IndusInd Bank Ltd ended 7.9 percent lower.
Among other banks, ICICI Bank Ltd fell 5.4 percent, while HDFC Bank Ltd lost 2.4 percent a day ahead of its June quarter results.
Shares in financial firms also slumped. IDFC Ltd fell 7.2 percent, while Housing Development Finance Corp Ltd ended 3.8 percent lower.
Morgan Stanley also changed its view on India's financial services stocks to "cautious" from "in-line", citing the Reserve Bank of India's decision to raise two short-term rates. However, among stocks that gained, Tata Consultancy Services Ltd ended 0.5 percent higher after hitting an all-time high of 1,666.35 rupees, ahead of its earnings results later this week.