Opening batsman David Warner has also been rested from the one-day international at Hobart to recover from a sore hamstring, CA added in a statement.
Shaun Marsh and Cameron White will replace Bailey and Warner in the squad for Friday's match, when Australia will target their third consecutive victory in the tri-series.
The International Cricket Council banned Bailey, who was leading the side in place of injured regular skipper Michael Clarke, after Sunday's match against India for a second over-rate offence in 12 months.
"Steven's appointment was a straightforward decision given the excellent impression he made in charge of the side during the ... test series when he stepped in for the injured Michael Clarke," national selector Rodney Marsh said.
"It is unfortunate for George Bailey that he will miss the match in his home state but in Steven we have a dynamic player who leads from the front, by example, and we look forward to him doing so again on Friday."
(Writing by Sudipto Ganguly in Mumbai; editing by Amlan Chakraborty)
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