The Sensex and Nifty plunged nearly one per cent as State Bank of India and other lenders extended losses on concerns about the likelihood of further monetary easing by the country's central bank.

The Reserve Bank of India had on Wednesday cut the repo rate by 25 basis points to 6 per cent, a more than 6-1/2 year low, but pinned future action on economic data, disappointing investors who had hoped for signs of more easing ahead.

Hopes of further rate cuts had risen after inflation eased while the economy is growing at its slowest pace in over two years.

A survey earlier on Thursday showed India's service sector activity contracted at its sharpest rate in nearly four years in July after a new nation-wide tax sowed confusion and sent new orders into free fall.

“Bank stocks are down mostly because of lack of clarity from the RBI,” said Sudhakar Pattabiraman, head

At 2.55 p.m., the 30-share BSE index Sensex was down 261.69 points or 0.81 per cent at 32,215.05 and the 50-share NSE index Nifty was down 72.3 points or 0.72 per cent at 10,009.20.

Among BSE sectoral indices, metal index fell the most by 1.68 per cent, followed by banking 1.57 per cent, realty 0.98 per cent and healthcare 0.79 per cent. On the other hand, oil & gas index was up 1.24 per cent and consumer durables 0.65 per cent.

Top five Sensex gainers were Bharti Airtel (+1.84%), Reliance (+1.23%), Bajaj Auto (+1.06%), TCS (+0.92%) and Hero MotoCorp (+0.74%), while the major losers were Coal India (-3.3%), Lupin (-3.02%), State Bank of India (-2.49%), ICICI Bank (-2.07%) and Axis Bank (-2.01%).

“Bank stocks are down mostly because of lack of clarity from the RBI,” said Sudhakar Pattabiraman, head of research operations at William O'Neil India.

“Monsoon seems to be fine, rural fundamentals look strong now and if inflation is a little better than what it has been so far, the RBI would want to hold off on rate cuts for now,” he added.

Housing Development Finance Corp, down as much as 1.71 per cent, was the biggest drag on both indexes.

The Nifty PSU bank index fell as much as 2.2 per cent, marking a third consecutive session of losses.

State Bank of India fell as much as 2 per cent, Canara Bank Ltd lost as much as 2.8 per cent, while Punjab National Bank dropped nearly 4 per cent.

However, the Nifty pharma index gained as much as 1.2 per cent, after falling for eight sessions in the last 10, after a media report said the Indian government has proposed to waive clinical trials on proven drugs