The Reserve bank of India may leave it to banks' discretion to decide if they wanted to open branches in rural and semi-urban areas in order to get a license to set up more branches in Urban and High Income areas.

According to this the bank would be required to apprize the apex bank of its priorities and preferences in the annual business plan. But the revised policy will only limit the number of branches to be opened in the urban areas. This number would depend on the bank's overall performance in all its branches and also meeting the rural and semi-urban obligations.

The existing branch authorization policy entails the banks to follow a set of norms while opening or upgrading new branches and extension counters, automates teller machines (ATMs) and shifting/splitting and closing branches.

According to the current RBI policy, it is necessary for a bank to obtain permission to open up branches anywhere. Besides this, RBI maintains a ratio of a bank's number of urban branches to rural/semi-urban branches. Setting up of a single branch in an urban area requires a certain number of branches to be opened up in rural/semi-urban areas.

Sources said that the proposed change forms a part of the recommendations as per the Raghuram Rajan Committee on financial sector reforms aimed at a greater access to finance.

The committee panel said that RBI should de-licence this process immediately while retaining the right to restrict exposure in certain sectors, involvement in frauds etc.

Accepting the recommendations by another committee, the regulator bank has allowed banks to set up ATMs without taking its prior approval.