This was the lowest closing for the BSE Sensex since December 14 when it had finished at 33,246.70 and also its biggest single-day fall since February 6, when it had lost 561.22. Banking stocks led by State Bank of India, ICICI Bank, Bank of Baroda, Punjab National Bank, Kotak Bank, HDFC Bank, Axis Bank, Federal Bank and Yes Bank fell as much as 2.77 per cent.

Investor sentiment was dampened after reports that the Serious Fraud Investigation Office (SFIO) had approached other lenders that have exposure to the firms promoted by scam-tainted Nirav Modi and Mehul Choksi to help in the agency's probe into the over Rs 12,000-crore PNB scam.

Banking shares came under more selling pressure after the RBI yesterday said it had imposed a penalty of Rs 3 crore on Axis Bank for violation of NPA classification norms and Rs 2 crore on Indian Overseas Bank for not complying with the KYC regulations.

The 30-share Sensex commenced on a strong note at 34,047.43 and advanced to a high of 34,060.13, tracking a firm trend in other Asian markets. It, however, slipped into a negative zone towards the fag-end to hit a low of 33,209.76 as participants booked profits at improved levels. The gauge finally settled 429.58 points, or 1.27 per cent, lower at 33,317.20.

In the last five sessions, the index has lost nearly 1,129 points.

The NSE Nifty after reclaiming the key 10,400-mark touched a high of 10,441.35 in early trade but later slipped into negative zone to hit a low of 10,215.90. It finally settled at 10,249.25, showing a sizeable loss of 109.60 points, or 1.06 per cent.

"Market gave up gains despite positive trade in global market. Consolidation continues led by broad selling across all sector. Market has broken yesterday’s low while banks continue to struggle due to NPA issue, higher bond yield and cost of funds. Investors are little nervous to start accumulating and are waiting for major triggers to get direction...," Vinod Nair, Head of Research, Geojit Financial Services Ltd, said.

The SFIO is said to have asked senior executives from the 31 banks who have done business dealings with the firms promoted by Modi and Choksi to be present at its office in the financial capital, according to sources.

Even as sections of media reported that ICICI Bank managing director and chief executive Chanda Kochhar and her Axis Bank counterpart Shikha Sharma have been summoned, the sources said as part of regular practise, office of the bank head would have received such letters.

Reacting to the development, Gitanjali Gems stock slumped nearly 5 per cent, to hit its fresh 52-week low of Rs 18.35 on the BSE.

This is the 14th straight session of fall for the stock. It has lost as as much as 75 per cent since February 14, the day the PNB fraud came to light.

Punjab National Bank share also shed 2.30 per cent to close at 97.75 on the BSE.

Nifty Bank index turned negative down 1.49 per cent at 24,448.45 as Canara Bank, PNB, Bank of Baroda, SBI, ICICI Bank, Axis Bank, Kotak Bank, HDFC Bank, Federal Bank, IDFC Bank and Yes Bank were down up to 5.10 per cent after investigation deepened in the PNB fraud case.

Except consumer durables, all sectoral indices led by realty, banking, auto, capital goods and PSU, fell by up to 2.21 per cent.

Among the heavy losers among Sensex components were: Sun Pharma, M&M, Maruti Suzuki, TCS, Bharti Airtel, HDFC LTD, Tata Motors, Wipro, Power Grid, ITC LTD, RIL, Bajaj Auto, L&T, Infosys, HUL, Dr Reddy's, Asian Paints, ONGC and NTPC, falling up to 2.95 per cent.

Bucking the trend, IndusInd Bank emerged as top gainer by surging 1.21 per cent.

Broader markets too followed benchmarks as the small-cap index fell 1.32 per cent and mid-cap 0.84 per cent.

In the Asian region, Japan's Nikkei rose 1.79 per cent, Hong Kong's Hang Seng moved up 2.09 per cent, while Shanghai Composite Index ended higher by 1 per cent.

European markets opened higher despite uncertainty following Italy's parliamentary election on Sunday which produced a hung parliament. Key indices in Europe such as Paris CAC 40 up 0.74 per cent and Frankfurt's DAX edged up 1.17 per cent. London's FTSE too rose 0.97 per cent in their early deals.

Crude oil prices also extended gains for the fifth straight day, underpinned by robust demand forecasts and prospects for informal contacts sought by OPEC with US shale oil producers at a key industry meeting in Houston this week.

International benchmark Brent crude futures climbed to USD 65.60 per barrel, up 0.06 cents, or 0.09 per cent. US West Texas Intermediate (WTI) crude futures advanced to USD 62.68 a barrel, up 0.11 cents, or 0.18 per cent.