The Bank Nifty fell 1.58 per cent or 270.45 points to 16,876.10 in early trade on Tuesday.
The index was headed towards its lowest close in nearly one and a half weeks.
PNB was trading down 2.90 per cent at Rs 140.65 while YES Bank lost 2.66 per cent to trade at 671.10.
HDFC Bank fell 1.93 per cent to trade at Rs 1,007.60.
IndusInd Bank declined 1.85 per cent to trade at Rs 842.15, Axis Bank fell 1.85 per cent to Rs 498.35, SBI was down 1.82 per cent at Rs 242.85 and Kotak Bank was down 1.59 per cent at Rs 641.35.
Federal Bank was (-1.38%) at Rs 61, Bank of India (-1.37 per cent) at Rs 140.20, Canara Bank (-1.36 per cent at Rs 282.25), Bank of Baroda (-1.2 per cent) at Rs 182.40, and ICICI Bank fell 0.65 per cent to Rs 276.10.
HDFC Bank cut its base rate by 35 bps to 9.35 per cent with effect from September 1. After this cut most banks base rates are 35-65 bps higher than HDFC Bank and they will have to take some hit on NIMs if they match it, according to analysts.
Separately, Fitch has downgraded Punjab National Bank viability rating by one notch to 'BB' . IDBI Bank, down 1.3 per cent, is also vulnerable to a downgrade given deterioration in the stressed asset ratio, Fitch added.