The Indian Banks' Association (IBA) on Friday asked Reserve Bank to allow home-grown banks to set up intermediate holding companies for raising capital for their insurance, asset management and allied businesses.

Responding to the RBI's discussion paper on the issue, the IBA said this could be an interim solution until ideal conditions are created for banks to set up financial holding  and bank holding companies.

These intermediate holding companies could be set up only with the prior approval of the RBI and regulated as any other non-banking finance company (NBFC), the IBA suggested.

It also said that the apex bank can stipulate such conditions that it considered appropriate while granting approval for forming such intermediate holding companies.

This would help create a framework for the regulation of the intermediate holding company, the IBA said.

With an intermediate holding company to take care of the capital needs of non-banking businesses, the parent company
would not need to approach the market for raising capital for its non-banking entities frequently and thereby risk its  balance-sheet, the IBA contended.

The interim solution has been suggested as creation of  financial holding companies and bank holding companies structures were not possible at one go, and also because it would be time consuming.