Royal Bank of Scotland boss Derek Sach has defended the bank’s strategy to lend support to HMV, keeping it out of bankruptcy for two years, before it collapsed this month.

Sach has said HMV was never a ‘zombie company’ – a business that is kept going despite unsustainable indebtedness.

Last week HMV’s lenders, led by RBS sand Lloyds, sold the retailer’s debt to restructuring firm Hilco.

The banks had thrown life lines to HMV in the last 18 months, by waiving loan covenants and softening borrowing terms. But such lifelines have been nicknamed “extend and pretend” loan agreements by critics, according to The Guardian.

HMV had been struggling in recent years as its core entertainment markets have been hit by the rise of digital downloads. The retailer had attempted to react to these trends by switching its product mix to a more technology-led offer.

“HMV is an example of a business challenged by both structural and cyclical factors,” said Sach. “The lenders’ support over the last two years was designed to provide time for management’s strategy to reposition the business to develop.”

Sach accepts that HMV’s strategy failed but said good use was made of the time bought by the banks’ support, helping non-core divisions within the HMV Group to be sold off in an orderly fashion.

If administrator Deloitte can find a buyer for the business it may return some cash to creditors.

RBS is a major lender to small and medium-sized businesses and has been criticised over lending policies that businesses say are adding to the UK’s difficult economic situation. The bank, 83% owned by the Government, is accused of maintaining loans to companies that in past recessions would have gone bust, at the expense of lending for investment or to new ventures.

The Sunday Telegraph reported that RBS and Lloyds opted to sell their debt to Hilco because the restructuring firm gave the banks informal assurances that it planned to keep the retailer alive. It is thought the banks had already received offers from vulture funds worth more than Hilco’s bid, but turned them down. It is understood Hilco is looking to keep half of HMV’s 230 stores open as part of any revival plan.

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