However, value-buying in several heavyweights towards the fag-end trimmed the losses, with the index finishing at 32,802.44, down 67.28 points or 0.20%.
The Sensex, which had lost 100 points in early trade, continued its slide and fell 217.78 points, or 0.66 per cent, to 32,584.66.
At 12.30 PM: Sensex slumped 111 points or 0.34% to 32,690.59 while the wider Nifty was down by over 47 points or 0.47% to 10,070.50. In this index, the stocks who were in negative were - Union Bank at Rs 156 per piece (3.20%), followed by Canara Bank at Rs 366.30 per piece (2.02%), Bank of Baroda at Rs 166.75 per piece (1.91%), SBI at Rs 313.05 per piece (1.90%), PNB at Rs 172.85 per piece (1.76%) and Syndicate Bank at Rs 86.50 per piece (1.54%).
"Negative global cues and local service sector survey data for November weighed on the market sentiments".
The gauge had tanked 891.50 points in the previous four sessions as upbeat second quarter GDP numbers failed to dispel concerns over a widening fiscal deficit.
"All eyes are now on RBI policy outcome which takes place tomorrow".
The Reserve Bank of India's monetary policy committee is likely to keep the policy repo rate on hold on account of various factors, including likelihood of retail inflation nudging up due to higher prices of vegetables and protein items, rising crude oil prices, risk of fiscal slippage, and possibility of the US Fed upping interest rates.More news: Colin Kaepernick up for TIME person of the year
Vinod Nair, Head of Research, Geojit Financial Services, said: "After a subdued trade, the market reversed from day's low led by banking stocks".
Key indices on Wednesday opened in red before the RBI policy announcement.
"The recent correction in PSU banks provides an opportunity for investors to accumulate as the long term prospects remains strong owing to healthy recapitalisation".
Indian markets ended lower on Tuesday erasing earlier gains.
Selling pressure also gathered momentum in other stocks such as Sun Pharma, Tata Steel, Hero MotoCorp, Bajaj Auto, M&M, Adani Ports, Wipro, NTPC and L&T.