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UPDATE 3-India's Yes Bank plunges 60%, panicked depositors rush to withdraw funds

Chris Thomas, Savio Shetty and Sudarshan Varadhan

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* Shares plummet as depositors scramble to withdraw funds

* Police fan out to control crowds in some places

* Central bank takes control after months of concern

* Loses $1 bln in market value in biggest intra-day fall

* Bank has network of more than 1,000 branches (Recasts, changes slug)

BENGALURU/MUMBAI/NEW DELHI, March 6 (Reuters) - Shares in India's Yes Bank Ltd plunged 60% on Friday as panicky depositors rushed to withdraw funds after the central bank took control in a dramatic late-night move and limited withdrawals from the troubled lender.

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 growing concerns over governance.

Shares of Yes Bank plunged as much as 85% to wipe out more than $1 billion of market value, marking the biggest intra-day fall in an Indian blue-chip stock. By early afternoon, the stock was down 60% after paring losses.

(For timeline of events, please click on)

As thousands of customers rushed to pull out funds and tempers flared at overcrowded branches nationwide, police deployed in some states to help control the crowds.

Many business owners feared the central bank's move would hit 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.

Many customers took to social media to complain that the bank's online system was down, preventing fund transfers, while payment apps, such as PhonePe, which use Yes Bank to help process transactions, were also affected.

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

The rout of Yes Bank sent the broader market and the banking index into a tailspin.

As global markets reeled from uncertainty over a coronavirus outbreak, the debacle sent the NSE Nifty 50 tumbling as much as 3.9% to its lowest since last September. The Nifty Bank Index was down 4.65% by 0630 GMT.

RESCUE PLAN

The RBI placed Yes Bank under a moratorium on Thursday, and said it would swiftly work on a revival plan.

In a note, rating agency Moody's said the moratorium was credit negative as it affected timely repayment of depositors and creditors. It said the lack of coordinated action underlined continued uncertainty over bank resolution processes in India.

"It will be done very swiftly, it will be done very fast," RBI Governor Shaktikanta Das said at an event in the commercial capital of Mumbai, responding to a query about the rescue plan for the bank.

"Let me assure you that the Indian banking sector continues to be sound and safe," Das said on Friday. "We stand committed to maintain stability in the financial and banking sector."

In a regulatory filing on Thursday, State Bank of India , the largest state-run lender, said its board had given in-principle approval to explore an investment in Yes Bank.

SBI shares tumbled as much as 12% on Friday, in its biggest intraday drop since October 2012.

"(RBI's move) was inevitable, and was in the offing for some time," said Deepak Jasani, an analyst at HDFC Securities.

"The collateral damage it will have on the equity markets and debt investors is something that we have to be worried about in the near-term."

Yes Bank, struggling under a huge 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 in fresh capital, and in February delayed its December-quarter results.

"We believe forced bailout investors will likely want the bank to be acquired at near zero value to account for risks associated with the stress book and likely loss of deposits," JPMorgan analyst Saurabh Kumar said in a note.

JPMorgan cut its price target on Yes Bank to 1 rupee, from 55 rupees ($0.7468) a share. ($1=73.9100 Indian rupees)

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

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