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Indian banks had already fallen 0.3 percent on Tuesday after the Reserve Bank of India surprised investors by raising interest rates for the third time in five months to contain inflation.
The hike in rates did help boost the rupee at a time when emerging markets were under pressure, but stock investors are concerned about its potential impact on economic growth.
Overseas investors have sold shares worth $452 million since Thursday's close amid turmoil in emerging markets.
Volumes on the benchmark BSE index sank to the lowest in four days, with caution also prevailing ahead of the conclusion of the United States Federal Reserve's policy meeting later in the day.
The Fed is widely expected to continue reducing its monthly bond purchases by $10 billion a month.
"I think the decision on tapering is crucial for global markets including India. $5-10 billion is okay but anything beyond that would be a shock for us," said Sudip Bandyopadhyay, managing director at Destimoney Securities Pvt Ltd.
The broader NSE index lost 0.1 percent, or 6 points, to end at 6,120.25, its lowest close since Nov. 28.
The BSE index fell 0.18 percent, or 36.21 points, to end at 20,647.30, extending its losing streak for a fourth consecutive session.
ICICI Bank Ltd fell 1.7 percent after its chief executive officer said she expects addition in bad loans and restructured debt to continue in the coming quarters.
The bank's December-quarter net non-performing loans rose to 0.94 percent versus 0.76 percent a year ago.
Among other financial stocks, Housing Development Finance Corporation Ltd fell 0.7 percent while State Bank of India Ltd ended 1.4 percent lower.
Bharti Airtel Ltd lost 1.3 percent, having earlier risen as much as 2.86 percent, after October-December voice minutes on its India mobile network grew 1.47 percent quarter-on-quarter, lagging some analysts' expectations.