Falling deposits are the latest problem for Yes Bank after bad loans

The lender issued a statement last month assuring customers about its liquidity and stability and said it is making every effort "to financially strengthen the bank further."

When a former YES Bank executive started selling his stake in September, the lender’s top managers watched for any sign that the resulting drop in share price would trigger a rush to withdraw deposits.

The stock sales came as customers of a regional lender — Punjab & Maharashtra Co-operative Bank — were lining up outside its branches to withdraw their money following an alleged management fraud. Rampant speculation online about broader contagion forced the central bank to issue rare statements assuring the public of the safety of the financial system.

YES Bank’s loss of mom-and-pop deposits in September was manageable in the end, though it pointed to a risk for the lender whose peers HDFC Bank and ICICI Bank drew more savings from customers during that period. India’s fourth-largest private lender has had a tumultuous 2019 with a new chief executive unable to raise the capital needed to bolster ratios that stand just above a regulatory minimum and quell analyst questions about its stability.

“It is now a vicious circle where a lack of capital is increasing concerns on the bank’s bad loans, creating uncertainty among investors and depositors, which is adding to the withdrawal of low cost and retail term deposits,” said Ravikant Anand Bhat, an analyst at IndiaNivesh Securities.

The lender’s share price tanked 74 per cent last year as soured debt mounted given its exposure to shadow banks entangled in a prolonged crunch in the local credit market. The plunge has continued this year, with shares dropping another 21 per cent even as a benchmark index remained little changed.

The bank is due to report results for the December quarter, which will show whether deposits eroded further in the last three months of 2019. Bhat expects total deposits to decline another 20 per cent, after they dropped 7.3 per cent from June to Rs 2.1 trillion ($29 billion) as of September 30.