Keeping the government's financial inclusion programme in mind, the Reserve Bank of India is planning to permit more local area banks in the country.

The finance ministry and the central bank are in talks on granting licenses to such banks, as per Raghuram Rajan Committee's recommendations, after putting proper regulatory framework in place.

The committee had envisaged these local area banks as private, well governed bodies that would have a higher capital adequacy ratio, a strict prohibition on related party transactions.

According to an RBI official, these banks were likely to have a capital adequacy artio greater than 15 percent. CAR for scheduled commercial banks is 12 percent.

A senior finance ministry official said, "They will help to bring in local knowledge to bear on products that are needed locally."

Local area banks were conceived in the Union Budget of 1996 to mobilise rural savings and make them available for investments in local areas. They are expected to manage the credit availability and enhance the institutional credit framework in rural and semi urban areas.

The licenses for operating such banks would be given out in under-branched or unbanked areas of the country. Some of these banks might be converted into full fledged banks at a later stage.