Mid-sized lender Yes Bank Ltd is in talks to buy the local retail and commercial banking operations of Royal Bank of Scotland Group Plc (RBS), a source with direct knowledge of the matter said on Tuesday.

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 a 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's Indian unit has 31 branches, 400,000 customers and was profitable, with assets of 190 million pounds and revenues 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 continued to review 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's 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.