The shock move by the Reserve Bank of India (RBI) followed months of steady deterioration in the financial position of the country's fifth-largest private lender and concerns over governance.

As thousands of customers poured into overcrowded branches nationwide and scrambled to pull funds, tempers flared and police were deployed in some states to control crowds.

Many business owners feared the central bank's move would sting their operations too as the lender, with 1,000 branches across India, has many commercial clients.

"I will struggle to pay salaries to my staff, or pay any of my vendors, because of the restrictions," said Chintan Patel, a building contractor in the western city of Ahmedabad.

Customers took to social media to vent about the lender's online systems being down, preventing fund transfers. And payment apps, such as PhonePe, which use Yes Bank to process transactions, also faced extended outages.

In a tweet, Sameer Nigam, the head of PhonePe, which is now owned by Walmart Inc's Indian arm Flipkart, apologised to customers and said it hoped to go live again in a few hours.

SHARE PRICE ROUT

Shares of Yes Bank fell as much as 85% early on Friday, erasing more than $1 billion of market value, the biggest ever intra-day fall in an Indian blue-chip stock. The stock pared losses later in the day to close down 56% on the day.

(For timeline of events, please click on)

"Effectively, Yes Bank should have no equity value left," said Sandip Sabharwal, a Mumbai-based fund manager. "Ideally, trading should be suspended until a formal restructuring."

The Yes Bank rout sent the broader market into a tailspin.

As global markets reeled from the coronavirus, India's debacle sent the NSE Nifty 50 tumbling as much as 3.9% to its lowest since last September. It later pared losses to close down 2.5%, while the Nifty Bank Index closed 3.5% lower on the day.

The RBI placed Yes Bank under a moratorium on Thursday and said it would swiftly work on a revival plan. On Friday it said State Bank of India would pick up a 49% stake.

Shares in SBI, the largest state-run lender, also tumbled as much as 12% on Friday - its biggest intraday drop since October 2012. The stock closed down 6.2% on Friday.

"WHO CAN YOU TRUST?"

Yes Bank, struggling under a growing pile of bad debt, has battled for months to raise the capital it needs to stay above regulatory requirements. Since late last year, it had been trying to raise $2 billion, and in February delayed its quarterly results.

Yes Bank is the third major financial institution to unravel in the last six months, following the RBI's moves to take control of Dewan Housing Finance Corp and Punjab & Maharashtra Co-operative Bank.

India's opposition Congress party hammered the government for the failures, and said Finance Minister Nirmala Sitharaman was "bereft of ideas on how to fix the economy."

Sitharaman in turn said most of the banking system's woes began during Congress' tenure.

"I want to assure every depositor that their money will be safe," she said. "The steps taken have been taken are in the interest of the depositors, the bank and the economy."

However, the RBI's restriction on withdrawals while a rescue plan was being worked on left many depositors distraught.

Anupam Varghese, who runs a start-up in India's tech hub of Bengaluru, said he felt fortunate as he withdrew most of his money in advance, but he said the experience left him troubled.

"If you can't trust your bank, who can you trust?" he said. "I should be worrying about other things ? my business, my work, not this."

(Additional reporting by Mumbai, New Delhi and Bengaluru newsrooms; Writing by Euan Rocha; Editing by Uttaresh.V, Clarence Fernandez and Andrew Cawthorne)

By Chris Thomas, Savio Shetty and Sudarshan Varadhan