Britain’s two largest retail lenders are to get another 31 billion pounds from the government and have agreed to sell hundreds of branches and key businesses to appease EU competition concerns over state aid. The deal announced on Tuesday paves the way for Britain to begin reducing its holdings in Royal Bank of Scotland and Lloyds Banking Group, a potentially critical source of funds as the country struggles with a ballooning budget deficit.

RBS and Lloyds ended months of uncertainty, with Lloyds announcing that it would drop out of a government insurance scheme for bad debts by raising 13.5 billion pounds ($22.08 billion) in the world’s largest ever rights issue, as part of a 21 billion-pound capital raising plan. The move leaves RBS, 70 per cent state-owned, as the only bank joining the government’s Asset Protection Scheme but under more flexible terms than expected earlier this year, which RBS said will allow it to leave the scheme within four years.

Both banks, however, also agreed to disposals to meet EU state aid rules, with RBS particularly hit, selling chunks of its retail bank under the revived brand Williams & Glyn, its RBS Insurance arm and shrinking its investment bank. “We do feel bruised by what we’ve had to go through,” RBS’s chief executive Stephen Hester said on a conference call.

“Our job (of turning around RBS) has been made more difficult by some of the aspects of the EU settlement, but nevertheless we believe it is a doable job,” he added. Lloyds, which avoided harsher penalties by staying out of the APS, said it would sell 600 of its retail branches, with disposals including Lloyds TSB Scotland, Cheltenham & Gloucester branches, as well as its Intelligent Finance and the TSB brand.