Private equity groups have been shut out from bidding in the first round of the £7bn ($13.6bn) auction of Royal Bank of Scotland's insurance business, which includes Direct Line and -Churchill.

Kohlberg Kravis Roberts, Blackstone and Apax Partners were among those firms that had been hoping to participate in the auction, but were told by RBS bankers they could not submit indicative offers amid the continuing difficulty in financing leveraged buy-outs, according to people familiar with the situation.