The board of Yes Bank Ltd has selected JC Flowers Asset Reconstruction Co as a joint venture partner to purchase a non-performing loan of 48,000 crores (about $6 billion) from a private sector lender.

The bank said it signed a binding term sheet with JC Flowers after receiving final approval from the credit committee of Yes Bank’s board of directors on July 13.

The bank was now recommending a Swiss challenge tender to sell its bad loan portfolio using JC Flowers ARC’s minimum bid. However, if a competitor’s bidder exceeds the base bid, JC Flowers will be allowed to match that amount.

The Swiss Challenge auction process is scheduled to begin on Friday. US private equity firm Cerberus Capital, racing to buy Yes Bank’s bad loans, is also expected to participate in the Swiss challenge, two people said on condition of anonymity.

JC Flowers valued Yes Bank’s bad loan book at Rs 12,107 crore, one of the two said.

Yes, the bank will now invest around Rs 400 crore for a 20% stake in the joint venture with JC Flowers ARC. As part of the deal, the private-sector lender asked potential buyers of the NPA to provide a $50 million guarantee.

In addition, JC Flowers needs to resolve a shareholder dispute with Eight Capital before the acquisition, people familiar with the matter said.

Earlier this year, Eight Capital pulled out of a joint venture with JC Flowers over disagreements over a bid for Yes Bank’s bad loans. The embattled manager is waiting for the Reserve Bank of India to approve his stake sale.

Once the equity purchase in Yes Bank is completed, the lender will participate in a rights issue proportional to its equity stake to raise Rs 18,000 crore.

According to a person familiar with the matter, ARC would use the funds to pay 15% cash to buy Yes Bank’s non-performing loans.

According to the RBI, ARC has to buy non-performing loans from any lender in a 15:85 structure, with 15% of the NAV paid in advance and 85% of the balance paid in security receipts. The deal will further clear the books for Yes Banks and pave the way for raising more capital for business growth.