In a statement, the EU executive Commission said a delay to the sale of RBS's British bank entity for small businesses Rainbow would not jeopardise the viability of the business.

The regulators also agreed to changes of the terms of the priority dividend, which they said would not result in lower dividends compared with what RBS could realistically be expected to pay under the existing terms.

"Establishing Rainbow as a standalone market player is key to increasing competition in the UK market for banking services to SMEs," EU Competition chief Joaquin Almunia said.

"The Commission has agreed to extend the deadline for divesting Rainbow because the UK authorities and RBS have proven their commitment to create and divest Rainbow as a solid standalone bank."

(Reporting by Barbara Lewis, editing by Robert-Jan Bartunek)