The BSE Sensex falls around 1.5 percent on caution ahead of the April-June current account deficit, which is expected to have widened from the previous quarter.
Shares also track lower global shares as a shutdown of the U.S. government seemed increasingly likely, while the euro had political troubles of its own as the Italian government teetered on the edge of collapse.
Banking stocks fall on worries about higher non-performing loans and the possibility of RBI raising rates one more time with its new found focus on inflation, dealers say.
ICICI Bank falls 3.7 percent, while State bank of India is down 1.7 percent.
The benchmark index has gained 4.4 percent so far in September, heading for its first positive monthly close since May, while rising 1.7 percent for the September quarter as of Friday's close.