The Sensex plunged 894 points while the Nifty crashed below the key 11,000-mark on Friday as regulatory curbs on Yes Bank triggered a crisis of confidence among domestic investors.
A heavy sell-off in global markets on coronavirus concerns took a further toll on risk sentiment, traders said.
After nosediving over 1,459 points during the day, the 30-share BSE Sensex settled 893.99 points or 2.32 per cent lower at 37,576.62.
Likewise, the broader NSE Nifty tanked 279.55 points or 2.48 per cent to close at 10,989.45.
Banking counters wilted under selling pressure, with Yes Bank plummeting over 55 per cent, after the RBI placed the lender under a moratorium, capping deposit withdrawals at Rs 50,000 per account for a month and superseding its board.
The unusual move late Thursday evening came hours after finance ministry sources confirmed that State Bank of India (SBI) was directed to bail out the troubled lender, once a Dalal Street darling.
Tata Steel was the top laggard in the Sensex pack, cracking 6.51 per cent, followed by SBI, IndusInd Bank, HDFC, ICICI Bank and ONGC.
Bajaj Auto, Maruti and Asian Paints were the only gainers.
During the week, Sensex plunged 720.67 points or 1.88 per cent, while Nifty sank 212.30 points or 1.89 per cent.
According to analysts, investors took the Yes Bank episode very negatively, raising questions on the stability of the overall Indian financial system.
"Another bank bites the dust. This time its Yes Bank - one of the large private sector banks. RBI has stepped in and leading state-owned institutions are patching up a bailout plan for the bank and more importantly, safeguard the interest of depositors. However, the already weak sentiments have been dented further.
"The series of accidents in the Indian financial sector sends out a very poor message to the foreign investors. The negative bias is expected would sustain in the near term," said Gaurav Dua, Senior VP, Head - Capital Market Strategy & Investments, Sharekhan by BNP Paribas.
Meanwhile, Finance Minister Nirmala Sitharaman and RBI Governor Shaktikanta Das on Friday assured Yes Bank depositors that their money is safe and all steps will be taken to ensure stability in the financial sector.
All BSE sectoral indices ended in the red, with metal plunging 4.40 per cent, followed by bankex, finance, energy, realty, oil and gas, power and industrials.
The broader BSE midcap and smallcap indices too skidded up to 2.36 per cent.
World markets sank deeper into red as the coronavirus outbreak stoked fears of a global recession.
Bourses in Shanghai, Hong Kong, Seoul and Tokyo sank over 2 per cent.
European benchmarks were also trading significantly lower in their morning sessions.
Brent crude oil futures fell 2.54 per cent to USD 48.72 per barrel.
On the currency front, the Indian rupee depreciated 32 paise to 73.24 per US dollar (intra-day).
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