Yes Bank in talks to buy RBS's Indian unit: source

A man passes a Royal Bank of Scotland branch, in central London February 21, 2009.

MUMBAI/LONDON (Reuters) - Yes Bank Ltd is in talks to buy the local retail and commercial operations of Royal Bank of Scotland Group Plc (RBS), a source with direct knowledge of the matter said.

A plan by RBS, majority owned by the UK government, to sell the Indian businesses to HSBC Holdings Plc fell through in November last year, more than two years after the two banks started negotiations.

Yes Bank, India's No. 4 private sector lender with assets of nearly $11 billion, is likely to start due diligence on the RBS unit soon, said the source, declining to be named as he was not authorised to speak to the media.

RBS, which is expected to be fined for its role in a global interest-rate rigging scandal later in January, is selling off unwanted assets to strengthen its capital position.

The bank is scaling back its international opeations following a bailout during the 2008 financial crisis which left it 81 percent owned by the government. Britain's Finance Minister George Osborne has ordered it to focus on domestic activities.

The bank has shrunk its balance sheet by 700 billion pounds since its rescue and is continuing to sell off unwanted assets as it looks to meet tougher demands on capital requirements being set by the Bank of England's Financial Policy Committee.

RBS has been shrinking its Indian business since the original deal with HSBC was struck in 2010 and it now has assets of just 190 million pounds.

The unit has 31 branches, 400,000 customers and made revenue of 42 million pounds in the first nine months of last year, RBS said in a statement last November.

A Yes Bank spokesman declined to comment. RBS said the bank was reviewing all options for its retail and commercial businesses in India.

The Economic Times newspaper earlier reported that Yes Bank and domestic rival IndusInd Bank Ltd, headed by Ramesh Sobti, former India chief of Dutch Bank ABN AMRO, are in talks to buy RBS' India retail assets.

However, IndusInd Chief Operating Officer Paul Abraham told Reuters the bank was not pursuing RBS's Indian assets.

"No, we are not interested," Abraham said, when asked whether the bank was in talks for the RBS assets.

(Reporting by Sumeet Chatterjee and Swati Pandey, with Matt Scuffham in London; Editing by Richard Pullin)