The Sunday Telegraph has reported that the Royal Bank of Scotland has begun drawing up alternative ways to finally separate Williams & Glyn, with a possible option involving NatWest being hived off too.

The newspaper reported that RBS and its advisers at Bank of America Merrill Lynch and Robey Warshaw are exploring multiple options for setting up Williams & Glyn as an independent bank after the £1.5bn project was hit by a series of serious IT setbacks.

Last month the bank revealed there was a “significant risk” the new bank would not be independent by the end of 2017, the deadline imposed by the European Commission after RBS admitted it would not meet the previous target of the end of 2016.

It is said to be proving very difficult to clone RBS’s IT systems, a plan which would create an identical set-up at W&G, allowing RBS to easily transfer over the 1.8m customers and 250,000 business accounts which are moving to the new bank and its 316 branches.

It is believed that one alternative would be to set up W&G as a separate bank but let it continue using RBS’s systems – the same strategy used by TSB when it separated from Lloyds.

Another far more radical option under consideration by RBS’s advisers – but not yet shown to the bank itself – includes splitting off NatWest as well, joining the larger retail bank to W&G and selling them as a much larger entity.

It would also create an enormous challenger bank as NatWest was responsible for £6.5bn of RBS Group’s £12.9bn revenues last year.

Compared to the current plan, such a move would be relatively easy as NatWest already has its own IT systems, which W&G could use.

City sources believe it is unlikely that RBS would pick such a structure as NatWest makes up the vast majority of its English retail banking presence.

RBS declined to comment.