THE Government is reported to have put together plans to launch a 316-strong branch portfolio owned by Royal Bank of Scotland as a standalone state-owned small business lender.

Last month Spanish-owned Santander pulled out of a deal to buy the business, complaining of the expense and delays of transferring the operation.

This has left Edinburgh-based RBS at risk of missing a 2013 deadline to sell the portfolio, which was agreed with the European Commission.

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According to a press report, a plan has been drawn up in Whitehall to be used in the event of 82% taxpayer-owned RBS being unable to find another buyer.

The business, which includes six NatWest branches in Scotland, would be branded Williams & Glyn's, a name used by a north-west of England bank previously bought by RBS.

It would focus on lending to small firms,

Edinburgh-based RBS had agreed in 2010 to sell the business to Santander for £1.65 billion before the deal collapsed.

However, even if it is successful in selling the portfolio to potential buyers such as Sir Richard Branson's Virgin Money and US private equity house JC Flowers, most in the City predict that RBS would be forced into a less lucrative deal.

RBS declined to comment.