RBS could abandon the sale of its Williams Glyn unit after a seven-year struggle to sell the small business lender, under government plans.
Instead, the Treasury said RBS would provide £750m of initiatives to boost competition in UK business banking.
RBS had been ordered by the European Union to sell the unit by the end of 2017 to address competition concerns.
The bank failed to sell the business to Santander last year, and talks with Clydesdale Bank also stalled.
The Treasury and RBS said the alternative plan would be faster and better at providing more choice of banking services for small businesses.
The European Commission still needs to approve the plan, submitted by the UK government.
The EU order to dispose of Williams Glynn relates to RBS’s £45bn government bailout at the height of the financial crisis in 2008.
European regulators had originally demanded that the sale of the unit should be completed by 2013 to prevent RBS, the UK’s largest lender to small businesses, from having too dominant a position.
The Williams Glyn brand disappeared in 1985 after being replaced by the RBS brand. The resurrected Williams Glyn business would have had 300 branches and about 1.8 million customers.