The S&P/ASX 200 index ticked lower 0.1%, or 6.5 points, at 6,665.7, its lowest close since July 2. The benchmark lost 1.2% on Monday.

Financials stocks bore the brunt of losses after Australian Prudential Regulation Authority said it will raise capital requirements for banks by 3 percentage points of risk-weighted assets.

The increase was less than originally proposed, but is still likely to put pressure on lenders whose margins are expected to take a hit after the country's central bank cut its cash rate earlier this month.

"Banks will get no respite from the final rules, as more expensive capital instruments replace senior unsecured issuance," Fitch Ratings said in a note.

The "Big Four" banks lost between 0.3%-0.7%.

Investors also awaited U.S. Federal Reserve Chairman Jerome Powell's testimony on Wednesday and Thursday for cues on the near-term outlook for monetary policy.

Elsewhere, miners gained after S&P lifted its iron ore price forecasts for 2019, 2020, and 2021 as it expects a prolonged hit to supply stemming from the Vale dam disaster in January.

The world's largest miner BHP Group firmed 1.2%, while Rio Tinto Ltd added 1.4%.

Meanwhile, New Zealand's benchmark S&P/NZX 50 index dipped 0.6% or 67.87 points to finish the session at 10,538.11.

Losses were concentrated in banks, with local shares of Westpac Banking Corp and Australia and New Zealand Banking Group slipping 0.9% and 1.3%, respectively.