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More than a dozen corporates, including big names such as Aditya Birla Group, M&M, L&T, as well as state-owned PFC, LIC and India Post, are likely to apply to the Reserve Bank for licence to open banks.
The biggest loser was Canara Bank, whose stock was down 1.98% in the afternoon trade.
The stock of Allahabad Bank was down 1.66%, while that of Bank of Baroda slumped 1.57%.
However, shares of State Bank of India was trading in the positive territory and surged 0.71% on the BSE and touched a high of Rs 53.65.
Among others, Vijaya Bank stock was down 0.28%, Punjab National Bank was down 1.44%, Bank of India down 1.34 pc), Indian Overseas Bank down 1.13 pc).
Some of the leading private sector banks also tanked on the bourses. Shares of ICICI Bank was down 0.61% and HDFC Bank was down 0.27% on the BSE during the afternoon trade.
Commenting on the downslide, marketmen said the decline in the sector was largely because the new guidelines would increase competitiveness among existing players. Moreover the decline was also in tandem with a host of mid-cap and small-cap companies that crashed in the stock market today.
While announcing comprehensive guidelines for new bank licences on February 22, the Reserve Bank said interested entities can file their applications by July 1.
As per the new norms, entities with a minimum track record of 10 years would be eligible for licence after clearance from sector regulators, enforcement, investigative agencies such as I-T Department, CBI and ED.
The minimum paid-up capital for setting up a bank will be Rs 500 crore. The cap on the foreign investment, including FDI/FII and NRI, has been set at 49%.
