TAXPAYER-backed Royal Bank of Scotland (RBS) has been dealt another blow as the sale of its Indian arm to HSBC fell through.

RBS, which is 80% state-owned, said it will now wind down the business after the deal was scrapped, with HSBC citing a failure to complete all the details by the deadline.

The sale, worth £59m, was announced in July 2010 as part of RBS’s plans to reduce its non-core assets and would have seen 400,000 customers and 31 branches transfer to HSBC.

RBS said the Indian retail and commercial operations are profitable, generated revenues of £42m in the nine months to September 30 and have total assets of around £190m.

A separate £1.65bn deal to sell 316 RBS branches to Santander collapsed last month.

RBS said winding down the Indian operations was consistent with its strategy to reduce or exit its non-core assets and businesses.

The business accounts for around 0.5% of the group’s remaining non-core assets which are worth £65bn. In its third-quarter results, RBS said the non-core assets fell by a further £7bn to £65bn and have been reduced by 75% to date.

The group’s core businesses, what will become the “new” bank once the turnaround is complete, saw operating profits rise 67% in the third quarter to £1.6bn.

But despite the recent deal woes, RBS has cleared two major milestones in recent months, floating its insurance arm Direct Line Group in October, raising £911m from the sale of a 34.7% stake, while it also exited from the Government’s Asset Protection Scheme.

Virgin Money and Nationwide are reportedly keen on the branches RBS failed to offload to Santander following two years of talks.