Chancellor George Osborne said the £2.1bn raised from the sale would be used to pay down the national debt.
“This is an important first step in returning the bank to private ownership, which is the right thing to do for the taxpayer and for British businesses,” he said.
“It will promote financial stability, lead to a more competitive banking sector, and support the interests of the wider economy.”
In his Mansion House speech in June, the chancellor announced that he intended to start selling off RBS shares this year.
A letter sent to Osborne yesterday from UK Financial Investments executive chair James Leigh Pemberton stated: “Our view…is that an offer should be made to institutional investors, that we consider the current share price to be fair value, and that institutional investor sentiment and risk appetite remain conducive to participating in a first share placing of RBS.
“On that basis, we judge that now is a good time for a first sale in RBS on behalf of taxpayers.”
However, the sale price of 330p per share is considerably less than the 500p the government paid when the bank was taken into public ownership in 2008 and 2009. This has prompted questions about the timing of the sale.
Shadow chancellor Chris Leslie said: “RBS had to be bailed out urgently, but it doesn’t have to be sold off at the same speed.
“Labour has always supported the eventual return of RBS to the private sector but taxpayers who bailed out the bank will want their money back and will be suspicious of any fire sale. The chancellor needs to justify his haste in selling off a chunk of RBS while the bank is still awaiting a US settlement for the mis-selling of sub-prime mortgages.”
However, Osborne said it was the “right thing for the British economy”.
“While the easiest thing to do would be to duck the difficult decisions and leave RBS in state hands; the right thing to do for the economy and for taxpayers is to start selling of our stake.”
Commenting on the sale, RBS chief executive Ross McEwan said: “I’m pleased the government has started to sell down its stake. It’s an important moment and reflects the progress we are making to become a stronger, simpler and fairer bank.”