The Reserve Bank of India (RBI) on Friday proposed a separate wealth management unit for banks involved in wealth & portfolio management services.

In its annual monetary policy statement, the RBI suggested the banks to carry out all Wealth Management Services (WMS) activities through a separate subsidiary or via a Separately Identifiable Department or Division established for the purpose.

In the draft guidelines, the RBI said, "To address the issue of conflict of interest arising from the single entity conducting both the activities of advisory, fund management as well as marketing, it is proposed to segregate the two functions."

Before undertaking any wealth management scheme, banks would have to seek the central bank's approval. In addition, the bank's division providing investment advisory services would have to be registered with capital market regulator SEBI.

The RBI also mandated banks to keep their sales and advisory activities apart from each other, and warned that they could be barred from money markets for any violation of guidelines.

The guidelines also suggest that transactions above Rs 50,000 for wealth management products should not be accepted in cash or cheque of other banks; rather via debit to customers account.

The new guidelines were announced in a bid to address concerns over mis-selling, inadequate grievance resolution mechanism and also to address weak internal control mechanisms.