Reserve Bank of India tightening squeezes lenders Indian bank stocks fell heavily again on Wednesday in the aftermath of moves by the Reserve Bank of India to tighten liquidity, hit by concerns about a rise in the cost of funding. Private institution Yes Bank was the hardest hit by plans announced late on Tuesday by the central bank to augment last week's measures aimed at siphoning money from India's economy to underpin the rupee, which has fallen to record lows. Yes Bank closed down around 13 per cent, an indication that investors consider its business model - like those of a handful of other smaller Indian private banks - particularly vulnerable to increases in wholesale funding costs, which have been targeted by the RBI. The Bombay Stock Exchange's benchmark index of leading bank shares fell by about 5 per cent, while shares in other smaller private banks including Kotak Mahindra Bank fell by a similar amount. The RBI's moves raise bank funding costs directly in the short term but also threaten to increase levels of non-performing assets in the longer term, because tighter monetary policy is expected to erode growth in India's already stagnating economy. Yes Bank has come under particular pressure over the past two weeks, losing 24 per cent of its market value since the RBI's original measures were announced mid-month, raising doubts among analysts and investors about the previously fast-growing institution. The steep falls come despite the bank unveiling above expectation results for the March to July quarter on Wednesday, continuing its recent run of improving profitability while avoiding rises in the problem loans that have begun to affect some of its private and public sector peers. The bank reported net profit of Rs4bn ($67m) in the first quarter compared with the same period the year before, while gross non-performing assets rose only slightly compared with the previous quarter, increasing to 0.22 per cent of assets. Across India's banking industry, non-performing assets accounted for 3.5 per cent of loans at the end of the financial year, according to rating agency Crisil. Rana Kapoor, Yes Bank co-founder and chief executive, said: "Improved productivity, a wider and deeper branch network and continued focus on customised product offerings, have led to further growth of retail customers."