The BSE Sensex fell on Friday as private sector lenders were hit after the government and the Reserve Bank of India (RBI) said they would investigate allegations of money laundering practices, while S&P's comments that weaker growth was constraining ratings also weighed.
The finance ministry and the RBI are investigating allegations of money laundering practices at top private sector lenders ICICI Bank , HDFC Bank and Axis Bank , following an investigation by an independent journalist.
Broader sentiment was also hit after an analyst at Standard and Poor's said the slowdown in India's economic growth was less supportive for the country's sovereign credit ratings.
Investors are now gearing up for the Reserve Bank of India's policy review on Tuesday amid expectations that the central bank will lower interest rates by 25 basis points.
"The central bank will not do more than 25 bps, but what will be important is what RBI says with respect to its future stance. I don't think RBI will try to give a sense that they are going to be outright accommodative," said Dhananjay Sinha, co-head, institutional research, Emkay Global.
The benchmark BSE Sensex fell 0.73 percent, or 142.88 points, to 19,427.56.
The index fell 1.3 percent for the week, marking its sixth weekly drop in last seven.
The broader Nifty fell 0.62 percent, or 36.35 points, to 5,872.60, closing below the psychologically important 5,900 level and down 1.22 percent for the week.
ICICI Bank fell 3.9 percent, while HDFC Bank and Axis Bank dropped 1.5 percent and 1 percent, respectively, due to the uncertainty created by the regulatory probe into money laundering practices.
Goldman Sachs said the allegations, if proven, could slow growth for private sector lenders.
Sentiment was also hit after S&P's senior director Kim Eng Tan said the government may find it challenging to meet the revenue projections in its 2013/14 budget.
Among decliners, DLF Ltd fell 4.3 percent, while Tata Motors Ltd ended down 3.3 percent.
Bharti Airtel Ltd fell 1.4 percent after the Department of Telecommunications ordered the company to stop providing 3G roaming services outside its licensed zones, according to a source with direct knowledge.
Reliance Industries Ltd dropped 1.9 percent after Kotak Institutional Equities maintained its "reduce" rating on the stock, saying investors were over-estimating the impact from a potential gas price hike and the value creation from its capital spending plans.
However, among stocks that gained, Jubilant FoodWorks Ltd rose 3.2 percent after Deutsche Bank raised its target price to 1,300 rupees from 1,260, saying it continued to "believe in the long-term story and strong runway to growth.
Titan Industries Ltd rose 5.7 percent on value buying after declining 12.2 percent this month as of Thursday's close on concerns over working capital and interest costs.