The Nifty hit a record high in early trade on Friday, but reversed course to trade lower amid weak Asian markets as a drop in crude prices hurt sentiment and dragged down explorers such as Oil and Natural Gas Corp.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.4 percent on Friday and was trading at its lowest level since April 25 as the fresh falls in commodities raised concerns about the health of the global economy.
Banks gained after TV channels reported President Pranab Mukherjee had given his approval to a government ordinance that seeks to tackle non-performing loans in the sector. The government has yet to officially provide details.
The Nifty PSU bank index rose as much 2.35 percent to its highest since March 4, 2015, with State Bank of India jumping more than one percent and Canara Bank gaining around 7 percent.
"On a broader scale, when the markets reach a record high, it is natural to see investors becoming jittery and a little cautious. By the end of this earnings season, one will get a clearer picture on where the market is headed," said Tirthankar Patnaik, India Strategist at Mizuho Bank.
The broader NSE index Nifty was down 0.46 percent at 9,316.55 as of 0530 GMT, while the benchmark BSE index Sensex was 0.49 percent lower at 29,979.16.
Indian oil explorers fell on weaker crude oil prices, with ONGC and Oil India declining more than 2 percent each.
But oil refiners and airlines stocks rose with Indian Oil Corp climbing 2.1 percent while Spicejet Ltd was up 8.4 percent.
Weak oil prices result in higher margins for domestic refiners and airline companies.