The market has given a cautious welcome to the long-awaited return of RBS to private ownership after Chancellor George Osborne fired the starting-gun on the Treasury's sale process for the 80 per cent taxpayer stake.

RBS shares climbed by almost two per cent, as analysts said there would be significant interest from institutional investors willing to overlook the continuing drag from misconduct liabilities and uncertainties over the EU referendum.

Mr Osborne said the government's move, which at current prices would bring in £32billion to the coffers while representing a £7bn loss on the original bail-out cost, was based on independent advice from investment bank Rothschild and the Bank of England.

Analysts said institutions, particularly in the US, would see the bank as a play on Britain's economic recovery and be attracted by RBS's modest valuation - it is currently trading at a 20per cent discount to its asset value, or 0.8 times assets compared with 1.3 times at Lloyds.

Joe Dickerson, analyst at Jefferies, the New York-based investment bank, said: "I would say demand is high from large institutions in the US, the UK and Europe. It's a very attractive risk/reward pay-off with potential excess capital down the road."

Ian Gordon at Investec in London, which has a price target of 395p on the bank, said he disagreed with Rothschild's central argument that "the start of a sale programme by the government could change perceptions of RBS with consequent potential benefits for larger share sales in future".

Investec forecasts "moderate share price appreciation" in the short-term, but says investors may decide to "keep their powder dry" ahead of the promised institutional share offering.

Mr Gordon went on: "We remain positive on the shares. Our cautious optimism primarily relates to the very material capital surplus that we expect to unfold over the next 18 months. We model a £10bn share buy-back in 2016."

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: "The government pumped £45bn into Royal Bank of Scotland to save it from collapsing during the financial crisis, but it now looks like the taxpayer is not going to get all that money back. However if you throw in fees and the sale of the bits of Lloyds, Bradford and Bingley, and Northern Rock, overall the government predicts a £14 billion windfall for the taxpayer."

He added: "The good news is that the chancellor plans to offer Royal Bank of Scotland shares to the general public, which probably means they will be able to buy in at a discount to the market price, or with bonus shares attached. RBS is in the process of becoming a less risky, simpler bank. It isn't there yet, but progress is being made, and a modest dividend may even be on the cards in the not too distant future."

To break even on the RBS stake, the government would need a share price some 20per cent above current levels. Shares will initially be drip fed to institutional investors, with a retail offering in due course - though one problem is the need to avoid a timing clash with a Lloyds public sale which analysts say may have to wait until around March next year.

Investec's forecast sees RBS's risk-weighted assets falling from £349bn to just £225bn by the end of 2016. It says that despite a likely drag of £8bn from misconduct and restructuring costs, the bank could reach a capital ratio of 17.5per cent next year. A buyback of shares worth £10bn would still leave the bank comfortably above its target ratio of 13 per cent, the broker says.