The FT said people close to RBS said full nationalisation was unlikely, questioning how the state could force the bank to lend more to small businesses without placing "excessive risks" on the taxpayer.
News of the proposal comes as an £80bn scheme designed to increase the flow of credit to homeowners and businesses has been dubbed an "interest rate subsidy to banks".
There are fears that the Funding For Lending (FFL) scheme, a joint Bank of England and Treasury project, will join the ranks of a series of Government initiatives that have failed to encourage banks to lend.
George Osborne, the Chancellor, confirmed today that FFL is likely to replace the National Loan Guarantee Scheme (NLGS), the flagship £20bn "credit easing" programme he launched in March.
FFL will make money available to banks at low interest rates on the condition they pass it on to businesses and households in the form of loans and mortgages.
The scheme provides funding for up to four years, rather than the guarantees on unsecured debt that the credit easing scheme provided.
The National Institute of Economic and Social Research, said the new scheme was "just an interest rate subsidy to the banks" and "won't necessarily increase the volume of lending".
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