Chairman Sir Philip Hampton says RBS "may not meet absolutely every target"
The bank's chairman, Sir Philip Hampton, last week admitted the 83 per cent taxpayer-owned bank may not meet absolutely every target.
However he added the bank would meet the guts of the target.
Reports suggest RBS may fall short on its lending targets to SMEs by as much as s1 billion.
Project Merlin was an agreement reached in February 2011 between the UK Government and the largest UK banks covering lending, pay and bonuses.
Included in that deal was a collective promise by the banks to lend s76 billion to small businesses in the 2011 year.
At the half year point, the five banks signed up to Project Merlin agreement reported they had failed at that point to hit lending targets to small businesses.
The Royal Bank of Scotland, Lloyds Banking Group, Barclays, HSBC and Santander agreed s37.3 billion of new loans to SMEs in the first half of 2011 - s700 million short of what was agreed when the Project Merlin deal was announced last February.
Figures for second quarter lending from Project Merlin banks puts new lending at s53 billion, taking total first half lending to s100.3 billion.
However, the Bank of England's own estimates puts first half new lending from Merlin banks at s58.7billion.
He said: "The problem with the Merlin deal is that it is so generously drafted and open to interpretation we're not sure what hitting these targets actually means.
"What is being counted as lending and indeed what counts as a small business varies from bank to bank."
When the five Merlin banks posted their third quarter results in November of last year, they were collectively s1 billion short of their lending target to SMEs.
Figures for the Project Merlin agreement to the end of September show the Royal Bank of Scotland, Lloyds Banking Group, Barclays, HSBC and Santander UK lent s56.1billion to SMEs.
In respective third quarter trading updates Santander UK said it had lent s1.7 billion to SMEs in the first nine months, Barclays s11 billion, RBS s10.4 billion, and Lloyds s9.6 billion.
HSBC said it was s38 million off its Merlin targets at the end of the third quarter but did not give a breakdown.
In order to meet Project Merlin lending targets to SMEs, the five banks would have had to advance s19.9billion in the final three months of the year to hit the s76 billion promised.
However their lending to business on the whole is reported to be on course to beat the s190 billion overall target for 2011 after s157 billion was reported to have been loaned overall in the first nine months of 2011.
Each of the banks signed up to Project Merlin have their own agreements in how they will meet the criteria of the scheme but none of those arrangements have been made public.
And none of the five Merlin banks provide clear figures on what is new lending as opposed to renegotiated loans being recorded as a new loan, despite promising greater transparency as part of the Merlin deal.
It is also understood the Bank of England does not audit the lending figures provided by the Merlin banks, and merely acts as a post box for the lending figures, compiled by the Treasury.