Mumbai: The Reserve Bank of India has asked banks which want to start insurance activities to explain how they will organise capital for their proposed joint ventures, which need large amount of funds. The central bank''s query is in response to applications from a number of Indian banks, which have signed MoUs for insurance JVs.

Five JVs have been signed between Indian banks and foreign insurers in the last one year, involving 10 Indian banks, with many more showing an interest in the insurance business.

Banks say the RBI''s concern comes from the fact that in the future banks will require more resources to meet capital norms for Basel II, which will be implemented from 2008.

According to Indian Banks Association, the Indian banking sector will need close to Rs50,000 crore to adhere to the Basel II norms and over and above this banks will require funds to sustain the growing credit demand.

Those banks, which have applied for the RBI''s approval to enter the insurance venture, have to convince RBI about how they plan to arrange capital for Basel II and insurance business.

There is also a regulatory requirement that banks cannot invest more than 20 per cent of their net-owned funds in non-banking activities.

So far, only two large banks - SBI and ICICI Bank - have been allowed to enter the insurance business. Also, recently RBI had approved Allahabad Bank''s plans to enter the non-insurance JV with Sompo Japan Insurance.