The Co-operative Banking Group has boosted its bid to become a major banking force in Scotland by raising more than £200 million from its first big disposal.

The Co-operative is in a race against time to acquire from Lloyds Banking Group the 600 branches which have to be separated from the group by the end of 2013, 180 of which in Scotland would revert to their historic TSB brand.

But the Financial Services Authority is in the process of defining the extent of balance sheet deficits and the repairs needed, with the Co-op said to be facing a £1 billion shortfall that could scupper the sale by Lloyds, which continues to say the deal is on track.

Now a deal first agreed in July 2011 will see fellow mutual Royal London pick up the Co-op's life insurance and asset management businesses for £219m.

It follows a lengthy legal hold-up as Royal London, owner of the Scotttish Life, Scottish Provident and Bright Grey businesses all based in Scotland where the group employs 1200, sought leave to run the mutually-structured CIS insurance arm for commercial profit.

The Co-op, meanwhile, has already put its general insurance business up for sale and is said to have bankers running the rule over its pharmacies and mortgage book in efforts to boost the balance sheet.

Royal London, the UK's biggest life and pensions mutual, said funds under management would increase by £20bn to £70bn and its customer base by 50% to six million.

It will become the fifth- largest with-profits insurer with a £36bn fund, behind Prudential, Aviva, Phoenix and Standard Life.

Chief executive Phil Loney is said to be looking at other potential acquisitions in the sector.

Mr Loney said: "The increased scale of our asset management operations and introduction of over two million new customers will enable us to develop further efficiencies to support our profitability and contribute towards future bonuses and mutual dividends for members."

Barry Tootell, chief executive of The Co-operative Banking Group, said the completion was "expected to generate a significant release of capital".

He said the deal "will ensure continued protection of our policyholders, within a strong, mutual business with the necessary scale and focus on the long-term savings sector".

CIS policyholders will benefit from "increased certainty over charging structures" and from Royal London's experience of insurance fund management, the two groups said.