Banks get £31 billion more aid

By Clara Ferreira-Marques and Steve Slater

LONDON (Reuters) - Britain's two largest retail banks secured another 31 billion pounds from the government on Tuesday and agreed to sell branches and key businesses to appease EU competition concerns over state aid.

Royal Bank of Scotland and Lloyds Banking Group also accepted drastic caps on bankers' bonuses in deals that pave the way for Britain to begin selling the bank stakes it bought during the crisis -- a crucial source of funds as the country struggles with a ballooning budget deficit.

Lloyds also freed itself from a government insurance scheme for bad debts by raising 13.5 billion pounds in the world's largest ever rights issue, as part of a 21 billion-pound capital raising.

That left RBS, already Britain's whipping boy in the banking crisis blame game, as the only bank taking up the government's Asset Protection Scheme (APS) and accepting the most punitive disposals. Its shares closed 7 percent down.

The deals were aimed at satisfying EU regulators that at least one of the UK banks has been severely punished, while also addressing bonuses and reducing the burden on taxpayers, said Simon Maughan, analyst at MF Global.

"All three boxes have been ticked. But rather than spread the pain evenly, the decision has been made to cut Lloyds some slack and throw RBS to the wolves," Maughan said.

RBS did, however, manage to secure more flexible APS terms than expected earlier this year, and said it would be able to leave the scheme within four years.

BRUISED RBS