Benchmark indices ended the day sharply lower as heavyweights from the IT and banking sector were pounded.
Poor global cues from Asia and a sharp decline in Europe weighed on sentiments, apart from the payment banking license, which affected banking shares.
The Sensex ended the day lower by 323 points, while the Nifty fell 122 points in trade.
Check the top Sensex gainers and losers
Shares in heavyweight Infosys fell after unconfirmed reports that the company would soon announce an acquisition.
PSU Banking were the hardest hit in trade after the Reserve Bank of India announced a new set of payment banking licences. Fitch reported that this may have an impact on the market share of government owned banks.
Bank of Baroda and Oriental Bank of Commerce were the biggest losers from the space losing more than 6 per cent each. Canara Bank and Union Bank of India lost 5 per cent, while private sector lender Yes Bank fell a huge 8 per cent in trade.
Shares in Amtek Auto dropped 30 per cent in trade, after sliding almost 70 per cent in the last few trading sessions. The fall was largely on the back of the company's exclusion from the F&O segment.
Nestle India ended the day higher despite reports of getting a letter for damages. Mid cap stocks also saw some deep correction with DLF down a huge 4 per cent. Several metal stocks fell to their 52-week lows including the likes of Jindal Steel, Hindalco and NMDC.
Meanwhile, markets across Asia ended the day lower, while most of Europe was trading with significant losses.