Indian shares dropped on Monday, dented by financials such as ICICI Bank Ltd and State Bank of India as the IL&FS exposure still weighed, but losses were curbed by gains in Zee Entertainment Enterprises Ltd.
ICICI Bank Ltd, the top laggard on the broader NSE index, fell nearly four percent ahead of its December-quarter results, while SBI traded 2.47 percent lower.
Dewan Housing Finance Ltd fell as much as 7.6 percent after reporting a drop in net profit last week, while housing finance company Indiabulls Housing Finance slipped 5.5 percent.
"The issue with Infrastructure Leasing and Financial Service Ltd (IL&FS) is not over, contrary to earlier beliefs and that is why we see housing finance companies in the red today," said AK Prabhakar, head of research, IDBI Capital - Mumbai.
A string of defaults at the major Indian infrastructure financing and building company had triggered sharp falls in the stock and debt markets last year amid fears of contagion within the rest of the country's financial sector.
On Friday, IL&FS Transportation Networks Ltd unit Elsamex said it would initiate insolvency proceedings in Spain.
Earlier last week, CRISIL downgraded debenture rating of IL&FS Transportation network's unit.
However, gains in Zee Entertainment capped further declines in NSE index, as the media company's stock jumped nearly 15 percent after it denied any involvement in demonetisation-linked transactions.
"There is a wait-and-watch sentiment because of the budget," said Vinod Nair, head of research, Geojit Financial Services, adding, "Earnings this quarter hasn't been great so far, and I don't think we will witness earnings growth of even 7 percent-8 percent this year."
The broader Nifty was down 0.89 percent at 10,684.55 as of 0646 GMT, while the benchmark Sensex was 0.79 percent lower at 35,742.
Asian shares edged higher after U.S. President Donald Trump agreed on Friday to end a 35-day old partial shutdown of the government shutdown. Engineering firm, Larsen & Toubro Ltd gained over 4 percent after reporting a 37-percent surge in December-quarter net profit after market hours on Friday.
Canara Bank Ltd, down 1.7 percent, and Tata Power Co Ltd, which slipped 2.7 percent, are expected to report results later in the day.