UPDATE 1-H&R Block exploring options for bank as Dodd-Frank squeezes

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Oct 10 (Reuters) - U.S. tax preparer H&R Block Inc said it was exploring strategic alternatives for its banking unit to avoid heavy costs associated with stricter supervision under the Dodd-Frank Act.

H&R Block, like other companies with small banking units, is under pressure to get out of the business to escape costly oversight by the U.S. Federal Reserve.

Among the biggest exits, MetLife Inc agreed last year to sell its deposit business to General Electric Capital .

H&R Block's small banking unit, HRB Bank, provides banking services mainly to the company's tax clients. As of July 31, it had cash balances of $341 million.

The company, whose shares were down 4.7 percent in early trading, said it did not expect any material impact on its earnings for fiscal 2013.

H&R Block is facing stiff competition in its tax preparation business from do-it-yourself tax filing services such as Intuit Inc's TurboTax software, and the company has been on a cost cutting drive for most of this year.

It has cut jobs, shut offices and overhauled its management to focus on its fast-growing digital tax preparation business.

The company has engaged Goldman Sachs to advise on strategic alternatives for the bank.

H&R Block shares were trading at $16.81 on the New York Stock Exchange.

(Reporting by Sharanya Hrishikesh and Ashutosh Pandey in Bangalore; Editing by Ted Kerr)

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