Finance minister Alistair Darling said RBS would only pay bonuses it was contractually obliged to, which will amount to a cash payout of 175 million pounds (S$381 million) for last year.

'They've cut down the payments they are making to the absolute legal minimum,' Mr Darling said.

The previous year's bonus pool is estimated to have been near 2.5 billion pounds and RBS had been considering paying out more than 1 billion pounds in bonuses.

British media reported, however, that total payouts to staff for 2008 could still eventually top 1 billion pounds, including an extra 160 million pounds for non-managerial staff as part of a profit sharing scheme.

A further 600 million pounds could be set aside as part of plans to defer awards that would be paid to staff deemed essential to the bank's recovery over a three year period from 2010, newspapers reported. Some or all of that amount could be clawed back, however, if performance targets are not met.

Nobody at RBS could immediately be reached to comment on the reports.

RBS, which is 70 per cent owned by the government after being rescued with 20 billion pounds of taxpayer cash, said earlier that no bonuses or pay increases would be made to staff associated with the losses suffered last year.

In what he described as a 'profound change in culture,' Mr Darling said future bonuses will be restricted and would be recouped if people's performance falls short of the mark.

'Basically people have been paid short-term cash bonuses and not enough attention has been paid in ... stopping excessive risk-taking and also ensuring that you are encouraging people to think to the long-term,' he told BBC television.

Mr Darling said RBS had initially approached the government with bonus proposals that would have resulted in a potential bill of 'something like 1.3 billion pounds.' RBS said it was reviewing its future remuneration policy.

'A fundamental reform to pay and reward is needed to reflect the reality of the situation the company is in,' said Philip Hampton, RBS chairman. 'The board is satisfied that this approach will be seen by most reasonable observers to have balanced difficult conflicting issues.' Bankers in Britain and elsewhere are facing public anger over their role in the credit crisis and the multimillion pound bonuses they rewarded themselves with in the run-up to it.

The UK government has come under heavy pressure to curb the bonus culture, especially as taxpayers now own a large chunk of the banking sector. Politicians in the United States, Germany and elsewhere have also pledged to clamp down on payouts.

The pressure has been greatest on banks that have taken taxpayer cash, including RBS and Lloyds Banking Group.

UK Financial Investments, the body set up to handle the government's stake in RBS and Lloyds, declined to comment on how talks were going with Lloyds.

Lloyds declined to comment on reports it will pay out 120 million pounds in bonuses, but said where its staff have met performance targets 'it is right that colleagues receive some form of financial recognition.' Most staff received bonuses of less than 1,000 pounds last year, it said. -- REUTERS