The caution illustrates the growing wariness of Western banks about getting involved in Russian finance deals even if they are not in areas directly affected by sanctions.

Last week a European Union official warned banks considering buying Russian government debt that they should ensure any investment is not a way of circumventing sanctions on Russian state-owned enterprises.

The Russian Economy Ministry last week sent requests for proposals (RFPs) to banks on advisory roles for the sales of stakes of 50.08 percent in oil firm Bashneft (>> ANK Bashneft' PAO), 10.9 percent in diamond miner Alrosa (>> AK Alrosa PAO) and 10.9 percent in lender VTB (>> Bank VTB PAO).

Banks were told to respond by the close of business on Monday, March 21.

"We will not take part. We at first wanted to but talked to other European and U.S. banks and saw that none of them is going to," said a banker with a U.S. bank which received an RFP, speaking on condition that the name of his company was not disclosed.

If Western banks steer clear of the deals it is likely to make it harder for Russia to sell the assets at an attractive price as it will dim the interest of foreign investors who usually follow international banks' advice.

An alternative option would be to sell all or some of the stakes to a strategic investor. Based on current market capitalizations, the stakes could fetch around 430 billion rubles ($6.3 billion), Reuters calculations show.

A number of Russian businessmen, including former TNK-BP co-owner Viktor Vekselberg and the head of oil firm Lukoil (>> NK Lukoil PAO) Vagit Alekperov, have expressed interest in buying some of the assets.

However analysts warn that selling to private Russian investors would risk unflattering comparisons with the wave of privatizations in the 1990s, which led to the rise of the country's oligarchs and were blamed for widening the gap between rich and poor.

"That could be a disincentive for privatization," said Charles Robertson, global chief economist at Renaissance Capital. RenCap was among the banks which received RFPs.

TEN RESPONSES RECEIVED

Goldman Sachs (>> Goldman Sachs Group Inc), JP Morgan (>> JPMorgan Chase & Co.), Credit Suisse , Deutsche Bank (>> Deutsche Bank AG), Morgan Stanley (>> Morgan Stanley) , Barclays (>> Barclays PLC), Royal Bank of Scotland (>> Royal Bank of Scotland Group plc), BNP Paribas (>> BNP PARIBAS), UBS , Citi (>> Citigroup Inc), UniCredit (>> UniCredit SpA) , Societe Generale (>> SOCIETE GENERALE), Bank of America Merrill Lynch and Raiffeisen (>> Raiffeisen Bank International AG) were among the Western banks which received RFPs.

Russian Deputy Economy Minister Nikolai Podguzov was quoted by Russian news agencies on Tuesday saying that a total of 10 banks have returned with answers to the ministry, including Western ones. He declined to name the banks or give details of their responses.

Russian banks which were invited to submit proposals included the following lenders or their units: Sberbank (>> Sberbank Rossii PAO), VTB (>> Bank VTB PAO), VEB, Gazprombank, Renaissance Capital, Alfa Bank, MDM Bank and The Auction House of the Russian Federation.

Two Western banking sources told Reuters that Western banks see the privatizations carrying the same risks as helping to arrange the Russian sovereign Eurobond issue, since the deals could be seen by their governments as helping the Kremlin raise funds amid sanctions.

The U.S. government has warned some banks that buying Russian debt would undermine international sanctions imposed on Moscow for its role in Ukraine, The Wall Street Journal reported last month.

"Given the White House's position, banks will be afraid that it will be the same as with Eurobonds - it may be considered as helping the Russian government to raise money," said another executive with a U.S. bank.

Western investment banks have been closing or scaling back their operations as the Russian economy shrank under pressure from falling commodity prices and sanctions.

However, companies like financial advisory group Rothschild have been making cash from debt restructuring in Russia and some former Soviet countries.

Oksana Tarasenko, a department head at the Economy Ministry, told Reuters request that Russian and foreign banks had submitted answers to the ministry.

"As the next stage assumes a competitive comparison of the proposals, it is not expedient to name the banks," she said.

The Russian Finance Ministry is betting on the privatizations to balance its budget and not exceed a deficit of 3 percent of gross domestic product in 2016.

(Additional reporting by Darya Korsunskaya and Denis Dyomkin in Moscow, Sujata Rao in London; Writing by Katya Golubkova; Editing by Christian Lowe and Keith Weir)

By Oksana Kobzeva and Olga Popova