Royal Bank of Scotland has raised about £630m sterling from its third sale of a stake in Direct Line Insurance Group, the UK's biggest home and car insurer.

RBS sold about 300 million shares at 210 pence each to institutional investors, or 20% of Direct Line, the Edinburgh-based lender said in a statement today. RBS now owns about 28.5% of the insurer.

RBS, Britain's biggest government-owned lender, has to divest the insurer to comply with European Union rules after receiving a £45.5 billion bailout in 2008 and 2009.

Direct Line, which sold shares to the public in October, is cutting costs and seeking to sell more profitable policies amid falling premiums in the UK and lower returns on investments amid record-low interest rates.

"This successful sale keeps RBS fully on track to meet its obligation to divest its stake in Direct Line by end-2014," RBS Finance Director Bruce Van Saun said in the statement.

The UK government sold 4.28 billion shares for £3.2 billion in Lloyds Banking Group this week in the largest accelerated sale of secondary shares since 2009.

Meanwhile, a consortium led by private equity firm Corsair has emerged as the front runner to buy 315 branches being sold by Royal Bank of Scotland, three sources with knowledge of the deal have told Reuters.

A final decision has yet to be made, and rival bids from a Blackstone-led consortium and from W&G Investments, a group of investors fronted by former Tesco executive Andy Higginson have not been formally ruled out, sources said.

US-based Corsair is bidding along with fellow private equity house Centerbridge and other investors including the Church of England's investment fund and Standard Life Investments.

RBS was ordered to sell the business, which focuses on lending to small business and has assets of about £20.5 billion sterling, in return for receiving a £45.5 billion bailout during the 2008 financial crisis.

But the sale process, dubbed Project Rainbow, suffered a setback in October when Santander pulled out of a deal to buy the branches for £1.65 billion.

Corsair's proposal will see it invest between £600-800m to become a cornerstone investor ahead of a stock market flotation that would value the new bank at more than £1.5 billion.

The Blackstone-led consortium produced a proposal which was structured in a similar manner while W&G wanted to buy the business outright.

RBS executives considered W&G's offer of between £1.1-1.5 billion undervalued the business and the auction became a two-horse race in recent weeks, sources said. RBS was also keen to retain a stake in the business to share in futureu pside, they said.