Led by ICICI and SBI, bank stocks plunged today amid fears that the central

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bank may continue to raise interest rates to tame high inflation, impacting their business and putting pressure on margins.

Besides, analysts said fears of global economic slowdown pulled down stock markets worldwide, hitting financial stocks the most.

They said investors are worried that another rate hike by the Reserve Bank of India (RBI) to control inflation would make borrowing costly for corporate as well as consumer loans, slowing down economic growth and hurting the entire financial sector.

ICICI Bank, the worst hit among Sensex heavyweights, settled at Rs 864.75 on BSE, down 5.03 per cent. Intra-day, the stock dropped to one-year low of Rs 862.20.

Country's largest lender, SBI, shed 4.47 per cent to close at Rs 2,077.55, while HDFC Bank ended at Rs 462.85, down 0.85 per cent.

"Banking stocks, particularly PSU, dragged the market down. Besides, those banks witnessed the deepest cuts that have global exposure," said Shanu Goel, Senior Research Analyst, Bonanza Portfolio.

Others such as Yes Bank, Union Bank, PNB, Axis Bank, Bank of India and BOB too witnessed selling pressure.

Yes and Axis both ended with up to 5 per cent losses. BOB lost 4.47 per cent, Union Bank shed 2.49 per cent and Bank of India went down by 2.35 per cent.

The BSE Bankex index ended at 10,971.66, down 398.83 points, or 3.51 per cent. During the day, the index dropped to a one-year low level of 10,933.25.

Food inflation slipped to 9.03 per cent for the week ended August 6. The overall inflation for the month of July was 9.22 per cent.

Goel said inflation figure of above 9 per cent triggered apprehensions that RBI will go in for another round of rate hike at its next meeting, beating down the banking stock.

Losses in the banking stocks were in sync with the overall weakness in the broader market. The Bombay Stock Exchange 30-share index, Sensex, closed at 16,469.79, down 371.01 points.