SUPERMARKET Tesco was today being linked to a £1 billion deal to buy out Royal Bank of Scotland's share of their Tesco Personal Finance joint venture.

RBS, which is also considering the sale of its Churchill and Direct Line insurance arm, is said to have rebuffed an approach from Tesco several weeks ago but has now agreed to a deal in principle.

The Sunday Times said sources close to the talks expected an announcement of the sale to be made at Tesco's annual meeting later this month.

It is thought that RBS would provide banking services to Tesco Personal Finance for an interim period while the supermarket applies for its own banking licence from the Financial Services Authority.

RBS put its insurance assets up for sale last month, at the same as it unveiled surprise plans to raise £12 billion in fresh equity. Although a number of potential bidders have expressed an interest, sources told the Sunday Times that it was unlikely any would match RBS's £7 billion asking price.

The company has not publicly committed to sell the division, although it is expected to announce other disposals, such as the sale of its Angel Trains train-leasing business to Australia's Babcock & Brown this week.

The speculation over possible disposals came as a separate newspaper report said institutional investors in the group were working to find a new chairman to replace current incumbent Sir Tom McKillop.

Several senior figures have reportedly been approached by the group of shareholders asking them to become the new chairman.

The investor rebellion was sparked three weeks ago by the rights issue, which was accompanied by heavy write-downs of debt securities.

The Sunday Telegraph said Bob Scott, RBS's senior independent director, had held a series of investor meetings in an attempt to address concerns about management. The report said many investors called for a clear succession plan for chief executive Sir Fred Goodwin as well as Sir Tom.