Royal Bank of Scotland is considering a plan which could result in the sale of just over 10 percent of its British branches in a move to ease EU concerns over state aid, a source familiar with the matter said.

The bank could sell its 312 RBS-branded branches in England and Wales to satisfy the European Commission which has demanded disposals to compensate for billions of pounds in state aid received by the bank since it was bailed out a year ago.

RBS, 70 percent owned by Britain, uses the RBS brand for retail branches mostly in Scotland. South of the border, these tend to focus on small business banking -- a sale would therefore address a key area of competition concern.

RBS branches operating under the NatWest name, its main retail brand, were not expected to be affected.

The Financial Times reported on Wednesday that the plan -- mediated by the British Treasury -- was well advanced and was being considered by EU Competition Commissioner Neelie Kroes.

The source said no decision had been taken and negotiations were ongoing.

RBS has specifically included its British retail operations as one of its core businesses -- which it does not expect to sell or divest. This includes the RBS-branded branch network.

The bank, which has said it expected the EU to demand a pound of flesh to compensate for receiving state aid, is therefore expected to resist the plan to hive off a major slice of its branches.

RBS declined to comment on the branch sale plan. We are co-operating with (the Treasury) to work to achieve a sensible solution with the EU, a spokesman said. We are focused on ensuring that any disruption to our customers and staff is mitigated as far as possible.

A Commission spokesman declined to comment on the report.

Britain's Treasury also declined to comment.

The FT said the European Commission wanted a 10 percent reduction in RBS's small business banking operations. This could be achieved through the disposal of the bank's RBS branch network in England and Wales.

RBS branches in England and Wales account for just over 10 percent of the group's total of 2,279 branches in Britain, most of which are NatWest-branded.

The FT said any divestment would be via a sale to a rival or to private equity, although a stock market listing, possibly under the revived Williams & Glyn brand, was an option.

Analysts have said it could prove difficult to find buyers for bank branches, with foreign banks -- traditional buyers for these assets -- pulling out of Britain. Supply was also expected to increase, with Lloyds Banking Group set to sell part of its network to meet its own EU competition requirements.

(Additional reporting by Christopher Johnson in London and Foo Yunchee in Brussels; Editing by Greg Mahlich and Dan Lalor)

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