The NSE Nifty 50 index closed down 2.4% at 11,680.35, while the S&P BSE Sensex closed 2.6% lower at 39,728.41.
Gains in bank and IT stocks this month helped Indian equities rise for 10 straight sessions, as of Wednesday's close.
The Nifty Bank index, which has gained 7.6% so far this month, ended 3.4% lower on Thursday, with lenders HDFC Bank and Kotak Mahindra Bank closing 3.5% and 3.4% lower.
"The worry is that banks had run up too sharply in the past 15 days and we are seeing some amount of profit booking and correction because no one really knows what the actual impact on NPAs (non-performing assets) is from COVID-19," said Umesh Mehta, head of research at Samco Securities, Mumbai.
The declines at banks come a day after the Supreme Court set its hearing on waiving interest on loans under moratorium to Nov. 2, with banks hoping that the apex court will not offer any more reprieve to borrowers beyond the waiver on interest for loans up to 20 million rupees, which the government has agreed to pay.
IT firms were among the top drags on the blue-chip Nifty 50. The Nifty IT index ended 2.9% lower, with Mindtree Ltd slipping 8.2% ahead of its quarterly results.
Shares of Infosys Ltd ended 2.5% lower, a day after it beat quarterly profit estimates and raised revenue outlook on upbeat demand for its digital services.
(Reporting by Philip George in Bengaluru; Editing by Vinay Dwivedi)