The BSE benchmark Sensex crashed over 737 points to trade at 37,930 in a fag-end selling on Tuesday as investors weighed deepening woes in the financial sector.
The broader NSE Nifty too dived over 227 points to 11,247.90.
Yes Bank shares crashed over 24 per cent on Tuesday, a fifth consecutive session of fall. Other major laggards were IndusInd Bank, SBI, Bharti Airtel, ONGC, Tata Steel and TCS.
Compared with the Sensex movement, broader smallcap, midcap and largecap indices underperformed.
Sectorally, telecom dropped 3.88 per cent, followed by realty 2.22 per cent, tech 2.02 per cent and IT 1.72 per cent.
Analysts said a caution has prevailed among investors amid a deepening crisis at Punjab and Maharashtra Co-operative Bank (PMC) and fraud allegations against Indiabulls Housing Finance Ltd (IHFL).
The Mumbai Police on Monday filed a case against the former bank management and promoters of HDIL in the Punjab and Maharashtra Cooperative (PMC) Bank case and said a special investigation team will be probing the case.
The country's manufacturing sector activity in September remained unchanged amid subdued demand conditions both domestically as well as externally, a monthly survey said on Tuesday.
The IHS Markit India Manufacturing PMI was at 51.4 in September, unchanged from August and thereby posting its joint-lowest reading since May 2018.
In further worries for the auto sector and the economy as a whole, automobile sales have witnesses a sharp decline again in September.
Sales of Maruti Suzuki, Toyota Kirloskar, Bajaj Auto, Ashok Leyland and Mahindra and Mahindra have shown a significant decline during the month.
Asian stocks closed mostly higher on Tuesday. Markets in China and Hong Kong were closed for holidays.
Globally, investors are hoping that the US and China could find some common ground and reach some kind of a deal on trade and other issues during their high-level meet next week in Washington.