Q&A: What will the bank sell off mean for individuals?

Royal Bank of Scotland (LSE: RBS.L - news) and Lloyds Banking Group (LSE: LLOY.L - news) are to sell off some of their assets as part of a major shake-up of the UK banking industry. What will it mean for consumers?

I'm a shareholder in both banks what should I do?

The 2.8m shareholders of Lloyds Banking Group are to be asked to put more cash into new Lloyds' shares in the bank's £13.5bn rights issue.

Lloyds, the most widely owned share in the UK, primarily as a result of last year's takeover of HBOS, will also not pay any dividends until after January 2012.

The price of the rights-issue shares is set to be announced on November 24 but, given the huge sum the bank is looking to raise, the cash amount investors will be asked is expected to be equivalent to just over half the current value of shareholdings. For the average private investor with a holding of 740 shares, this should mean about £360.

Lloyds will shortly begin mailing private shareholders with the background and voting papers on the proposed capital raising.

Subject to approval at a general meeting on 26th November, the offer period for the new shares will run from November 27 into December. The bank is offering a free dealing service for investors who want to sell their rights who currently hold their shares in certificated form or through the Lloyds Banking Group Shareholder Account, Halifax Share Dealing or the Lloyds Banking Group Share Isa.

Meanwhile, RBS' £25.5bn capital raising will come entirely from the government - taking the state's ownership to 84 per cent - and private shareholders are not being asked for more cash.

Early reaction on the announced capital raisings and asset sales ranged from this being "bad news" for shareholders to "an attractive opportunity to increase exposure to (Lloyds) shares" from Schroders (LSE: SDR.L - news) ' head of UK equities Richard Buxton. However, Keith Bowman, analyst at private client broker Hargreaves Lansdown, said the consensus market view was more favourable to other banks.

Will the restructuring boost competition in the mortgage market?

The expectation is that competition in this area will improve. The UK market has fewer bank brands than most other countries and choice has fallen in recent years after Santander (Madrid: SAN.MC - news) bought up Abbey, Alliance & Leicester and Bradford & Bingley (LSE: BB.L - news) , and Lloyds has taken over all of HBOS's brands.

Francis Ghiloni, commercial director at realpricecomparison.com said: "The splitting up of Lloyds and the creation of other banks out of RBS should lead to more competition. At the moment Lloyds controls 30 per cent of the mortgage market but it is not a very competitive player. They don't offer any great rates at the moment - the best rates are currently from HSBC (LSE: HSBA.L - news) and First Direct - so Lloyds is not a bank that is going to help the market to grow."

He said one of the big problems at the moment is that very few players are lending. "But at some point lending will come back and it is much better that it comes back in a market where there is a vibrant number of players than just three or four giants in the market."

Possible new entrants to the market include Virgin Money and Tesco (LSE: TSCO.L - news) . But mortgage brokers also suggest C&G's branch network could prove attractive to an overseas bank looking to break into the UK market.

Existing individuals with a C&G mortgage will simply become a customer of another bank once this arm is sold.

RBS is selling of its insurance arm. How will that affect these products?

Millions of customers holding insurance policies with household brands such as Churchill and Direct Line should see little immediate impact from RBS's move to divest its insurance arm.

The two brands, along with the household names of Privilege and Green Flag, which sells motor breakdown cover, are part of the insurance division of RBS, which the bank must divest in the next four years to satisfy European Union regulators. RBS Insurance estimates it has about 17m insurance policies in force, including motor, home, contents and life policies.

In spite of speculation already commencing over potential suitors for the division, RBS said it was "very much business as usual" for its existing customers.

"We will continue to exercise strong and responsible stewardship of our businesses, including those that are scheduled for divestment, with a strong focus on meeting customer needs," said RBS.

"We will seek to ensure that any disruption associated with the restructuring is minimised and will keep our customers fully informed as the divestment process proceeds."

Will the rates on my current accounts with RBS or Lloyds be affected?

Probably not. But the deposit rates the two banks offer are not nearly as good as the ones being advertised by some of their rivals on the High Street. So it would be wise to consider moving your funds to a bank or building society which offers more competitive rates.

Alliance & Leicester's premier direct account pays 6 per cent year on its Premier Direct account as long as you deposit £500 each month. No overdraft charges are paid in the first year of the account's opening as well. Abbey also offers a 6 per cent rate to clients who deposit a monthly sum of £1,000, according to Moneyfacts.co.uk, the market research group.

The rates Lloyds and RBS provide to current account holders are dismal in comparison. RBS pays just 0.1 per cent in interest to its current account holders while Lloyds grants a 2.5 per cent rate to those who deposit £1,000 per month.