A RISE in interest rates risks undermining relations between banks and their customers unless anxious mortgage borrowers are properly prepared, Ross McEwan has said.

The RBS chief executive told bankers in London more than 1.5 million borrowers had bought their home since 2007 so had never experienced a rate rise, including over half of RBS and NatWest mortgage customers.

"While the combination of falling unemployment and falling inflation makes calling the timing of any increase in the base rate very difficult, we know it is something very much on the minds of our customers," Mr McEwan said.

"Recent speculation that rate rises may be pushed back will not remove worry."

He said there was a "huge amount of noise and commentary around rates" which left many customers confused about what impact changes in rates may have on them.

"This causes understandable anxiety which adds further strain to the relationships banks have with their customers."

Mr McEwan told the British Bankers Association annual conference bankers could not rely on the fact most banks had stress-tested customers' affordability against a significant rise in interest rates of up to seven per cent.

He said the bank would sponsor a major piece of research into how the public access, assess, and act on information about interest rates in the economy.

"We want to explore these issues in detail and we will share our findings with the FCA and with consumer groups for the benefit of the wider industry, before the end of the year."

The leader of the 81 per cent state-owned bank told the conference, which had earlier been addressed by David Cameron, that the bank was still grappling with the legacy of the past .

"We must get through a slate of conduct and litigation issues at RBS, relating to foreign exchange, our 2012 IT problems, US mortgage-backed securities, and our treatment of distressed SME customers."

He went on: "And none of us have yet found a way to grapple with the great weight on our reputation - the way we pay our employees.

"We have already announced that short-term bonuses will no longer be paid to me or any member of my executive committee, but I believe more work is needed to challenge the bonus culture that has done such great damage to the image and conduct of retail and commercial banking in the UK."

Mr McEwan said: "We have spent far too long arguing about regulation, defending poor customer service, and refusing to recognise that putting customers first should be treated like a fiduciary responsibility in banking."

He said RBS was "no longer competing with other banks in a number of areas" such as zero per cent credit card offers, products with teaser rates , and "new products so clever that they require pages and pages of small print to even begin to understand".

The RBS leader said the industry must end its complacency around complaints. "In just the first half of this year 2.5 million customer complaints were filed in UK banking. That is nothing short of appalling - any other industry would regard this as a crisis and that is the seriousness with which we should regard it."

TSB Banking Group's chairman Will Samuel said the bank wants the Competition and Markets Authority to launch a full-blown investigation of the sector.

"We hope the CMA will push ahead with a full market review focusing on substantive structural reforms as well as behavioural remedies," he told conference. "What we want to see is effective competition in retail banking."