HSBC Holdings, Europe's biggest bank, is considering walking away from Chancellor George Osborne's plans to inject 20 billion pounds ($31.6 billion) into the UK economy, according to a report in The Sunday Telegraph.

The newspaper said HSBC feels Osborne's loan guarantee scheme -- which will see the government loan money to UK banks to lend on to small and medium-sized companies -- is not workable as it would prove to be too expensive under the charging structure being discussed, adding 200 basis points on to the cost of loans.

The Sunday Telegraph cites sources close to the talks between the Treasury and Britain's biggest banks as indicating that HSBC remains part of the discussions, but that on the current basis the proposals appear to be a non-starter.

We're supportive of the government's aims to increase credit supply into the economy, said a spokesman for HSBC, declining to comment further.

A Treasury spokesman said: We're in ongoing discussions with the banks and these are progressing well as we work through the details of the scheme's design.

He declined to comment on any individual bank, but added: We're on target to put forward full details of the National Loan Guarantee Scheme in the spring.

On Friday Reuters quoted a Treasury source as saying Osborne was just weeks away from launching the scheme.

(Reporting by James Davey and Fiona Shaikh; Editing by David Cowell)