Royal Bank of Scotland could be asked to increase the size of the Williams & Glyn business it plans to sell next year, after the government asked for a speedy review of its impact on competition in the banking market.

RBS, which is selling Williams & Glyn as a condition of its taxpayer bail-out, expects that will mean losing 307 of its branches South of the Border. But now the Treasury has asked the Competition and Markets Authority (CMA) to assess what impact the sale would have on the wider banking market.

The CMA has no powers to order changes, but industry sources were speculating yesterday that the Treasury could respond by asking RBS - still 80 percent owned by the government - to add more branches into the sale.

The government wants challenger banks to increase effective competition, especially in the SME lending sector. Williams & Glyn will be a separately licensed bank with about 1.4 million retail customers and more than 200,000 SME customers.

The CMA is already investigating competition in UK banking, but the review into Williams & Glyn will be separate and the findings will be reported by July.

The Treasury said the Prudential Regulation Authority would separately assess whether the bank has a viable and sustainable business model.

Williams & Glyn must be sold by the end of 2017. The sale process has been costly and dogged by setbacks, largely related to technology problems. In 2013 RBS sold a 49 percent stake to a consortium of investors, led by US private equity firm Corsair, and last last month it named Jim Brown as chief executive of the business.

A bank spokeswoman said: "We are working hard and devoting significant resources to establishing Williams & Glyn as a viable, standalone bank that will bring increased competition to the retail market. We continue to focus on achieving the best possible outcome for customers, with an IPO planned for Q4 2016."