Even when the markets have tries consolidating amid this coronavirus mayhem, the financial stocks have continued to be the top losers with the Nifty Bank falling over 35 percent in the last 1 month as against a 28 percent decline in the benchmarks.

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So what other than the coronavirus impact is driving the banks further downwards?

The collapse of the two banks, co-operative bank PMC and scheduled

commercial bank YES Bank, within a span of 6 months along with the failure of some major NBFCs like IL&FS and DHFL seems to have also shaken investors' confidence in the financial system.

The depositors are also moving away, especially from mid-sized private banks post the YES Bank crisis, even though the government bailed out the cash strapped lender.

In the last six months, YES Bank saw deposit outflow of Rs 72,000 crore and the ripple effects of the same can be seen in some of the mid-sized private banks despite assurance from the RBI Governor as well as individual banks.

What many have heard is that some state government entities

have started to withdraw money as they feel that private banks are no longer safe, brokerage firm Macquarie quoted in a note.

Data compiled by Macquarie from the quarterly presentations also suggests that Axis Bank, ICICI Bank, HDFC Bank, and Kotak Bank have a relatively lower proportion of non-retail deposits, while IndusInd Bank, YES Bank, and RBL Bank stand relatively high at 34 percent, 37 percent, and 45 percent, respectively. The share of the top 20 depositors also is high for IndusInd and RBL.

IndusInd Bank has talked about a couple of state government entities pulling out money amounting to less than 2 percent of their total deposits, while RBL Bank’s deposits declined by 3 percent in the last one week, as per media articles.

This has also led the individual bank shares to fall sharply from their peaks. Both IndusInd Bank and RBL Bank have lost over 75 percent from their respective 52-week highs hit last year.

Trying to calm the investor nerves, IndusInd Bank also issued a statement saying it is well-capitalized and profitable and the figures about individual exposures doing the rounds were “bloated and outlandish.

RBL Bank MD & CEO Vishwavir Ahuja also said, "the environment over the last few days has raised concerns around the stability of certain private sector banks after moratorium announcement on Yes Bank. However, as far as we are concerned, in anticipation, we have been maintaining a significant liquidity surplus position."

“We were always in a comfortable position but in the last few days, on the institutional front, one or two state government organizations have been pulling out some money but that is across the board, across all private sector banks, which is why RBI had to formally reach out to them that they should not be doing that,” added Ahuja.

Meanwhile, as the coronavirus pandemic impact intensifies, the brokerage believes, "As of now, banks are trying to grapple with their BCP (business continuity plans) and WFH (work from home) implementation. The immediate impact will be on sales, i.e. volume/loan growth. Add to that, they are not able to send recovery staff for recovering dues. So, there will be some impact on NPLs. The impact is likely to be felt more in 1QFY21 as much of the Covid-19 issues started a week ago."

Could this be beneficial for large private banks?

According to the report, this flight to safety will be beneficial for large private banks and PSU banks. HDFC Bank and ICICI Bank are its top picks. They have a very good liabilities franchise and exposure to the SME space is also lower than peers., it added.