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RBS may face new PPI hit of up to 900 million pounds

The logo of RBS bank is seen reflected in the windows of a branch of the bank in the City of London financial district in London

By Abhinav Ramnarayan and Sinead Cruise

LONDON (Reuters) - Britain's Royal Bank of Scotland <RBS.L> may have to shell out a further 900 million pounds ($1.1 billion) to settle a final compensation bill for mis-selling payment protection insurance after a last-minute surge in customer claims.

The state-backed bank said on Wednesday it had made an additional provision of 600-900 million pounds, on top of the 5.3 billion pounds already set aside, after claims received in August exceeded expectations.

The news gives credence to recent comments by industry experts that Britain's most costly consumer banking scandal could yet have a sting in the tail even after an August 29 deadline for claiming compensation.

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Separately on Wednesday, rival Clydesdale Bank <CYBGC.L> (CYBG), which also owns the Yorkshire Bank and Virgin Money brands, said it had also received "unprecedented volumes" of requests for information from customers in the run-up to the complaints deadline.

CYBG said it could take several months before determining the quality of the complaints received and the potential related financial impact.

Later in the day, it said it expected to increase its provisions for legacy PPI costs by between 300 million pounds and 450 million pounds.

British banks have so far paid out more than 36 billion pounds to consumers eight years after it first emerged they were mis-sold the loans insurance on a vast scale.

PPI policies were sold alongside a personal loan or mortgage to cover repayments if borrowers fell ill or lost jobs but most were sold unsuitable policies.

RBS said 4.9 billion pounds of its total provisions had already been utilised.

People were bombarded with commercials and advertisements pushing them to make last minute PPI claims to their banks.

One such campaign was financed by Britain's banking regulator, the Financial Conduct Authority and fronted by U.S. actor-turned-politician Arnold Schwarzenegger.

RBS's new provision will be reflected in the third-quarter results, the bank said, adding that the processing of PPI claims were ongoing and the ultimate provision recognised could be above or below the 600-900 million pounds range.

Analysts at Investec described the RBS provision as a "horrific finish to the PPI saga".

"RBS has had more limited exposure to PPI relative to its domestic peers, in the context of which today's announcement ... is all the more shocking," Investec's Ian Gordon said.

($1 = 0.8145 pounds)

(Additional Reporting by Aishwarya Nair in Bengaluru; Editing by Jane Merriman and Mark Potter)