RBS faces posting a loss of up to £8 billion, the biggest since its UK Government bailout seven years ago, after being forced to set aside £3bn to cover penalties for financial misconduct.
The state-owned bank confirmed it was seeking backing to double the level of employee bonuses while saying it had made the provisions to cover litigation and mis-selling claims relating to the financial crisis.
The announcement yesterday wiped £900 million off the bank's stock market value. New RBS chief executive Ross McEwan talked of "bad decisions" during the financial crisis. Business Secretary Vince Cable suggested it showed how much damage had been done under RBS former chief executive Fred Goodwin.
A deepening deficit of up to £8bn for last year is now expected as the new costs come on top of the flagged losses of £4bn. About £4.5bn of these result from RBS shifting its riskiest loans into an internally managed "bad bank".
Mr Cable welcomed the determination shown by the new management to return to traditional banking values and behave in a "responsible" manner.
He said: "It is an absolutely shocking story that the British taxpayers are still paying for the excesses of this bank in the boom period before it collapsed in 2008."
"We had senior executives paid enormous amounts of money, taking risks that backfired and caused enormous damage and cost to the taxpayer. I think the fact the current crop of directors is accepting responsibly, not accepting bonuses, is sending the right signal."
Chairman of the Commons Treasury Committee, Andrew Tyrie MP, said a banking commission should be set up to discover how to claw back "either vested remuneration or deferred bonuses" to pay fines from those responsible.
"RBS is still paying a heavy price for past misconduct. So, too, are its customers and taxpayers," he said.
RBS chief executive Ross McEwan, who took over in October last year, warned further problems are still emerging from Goodwin's time in charge.
He said: "The scale of the bad decisions during that period [the financial crisis] means that problems are still just emerging."
The annual loss for 2013 would be £3bn more than the previous year and the biggest since the £24.3bn deficit in 2008 - a record for a UK company -which led to a record-breaking £45bn Government bailout to avoid its collapse at the height of the global financial crisis.
RBS unexpectedly said yesterday that nine of its top executives on its executive committee would waive their bonuses for last year. Mr McEwan had already said he would not take a bonus for 2013 and 2014.
The Edinburgh-based bank, which will confirm its full-year financial results next month, is still expected to make proposals to the UK Financial Investments (UKFI), which manages the Government's stakes in RBS and Lloyds, about boosting bonuses.
New European rules mean that, from this year, banks must gain permission from shareholders to pay more than the level of an employee's basic salary as a bonus.
Asked if the 81% taxpayer-owned bank was still planning to seek UKFI backing to put a resolution to shareholders to pay 200% of executives' salaries in bonuses, group chairman Sir Philip Hampton confirmed there was to be a shareholder consultation on the issue.
He said: "Yes, we think the right positioning of the business is to be commercial. We obviously need to be sensitive to our shareholding structure and some of the political and media issues around that everyone is extremely familiar with. But the ability to pay competitively we think is fundamental to the prospects of the business getting to where it needs to be."
RBS confirmed the £3.1bn it planned to set aside would be used to settle conduct claims relating to US mortgage products and the mis-selling of payment protection insurance and complex financial products known as interest rate swaps.
RBS shares fell by 7.5p to 332.2p.