The upcoming monetary policy review meeting of the RBI in April is likely to bring with it the start of the process of setting up of more private banks in the country. This step by the RBI follows the announcement by the Finance Minister during Union Budget 2010-11 that the country needs more private banks and that fresh licenses should be given to private players and non banking financial companies (NBFCs).

A source having knowledge about the on goings of the process said, "It may take close to 12 to18 months to finally set up those banks but the process of framing the eligibility criteria may start next month."

There is neither a time-frame nor have we fixed number in mind when it comes to issuing banking licenses," she added.

The large number of non banking asset finance companies eyeing a bank license includes Aditya Birla Group, Tata Capital, Anil Ambani-led Reliance Capital, Malvinder Singh-led Religare group, Muthoot Group, Bajaj Group and Shriram Finance. Now, the largest insurer of the country, LIC is also eyeing a banking license.

Finance Minister, Mr. Pranab Mukherjee has clearly specified that the issuance of bank licenses to new players would be entirely dependant on the eligibility criteria set by the RBI.

The source said that a preference might be given to NBFCs owing to the fact that they have a huge presence in the rural sections of the country.

This falls in line with the overall goal of achieving higher financial inclusion and widening of the banking network," said the source.

RBI has plans to set strict guidelines or eligibility criteria for the new entrants.

The current guidelines convey that a minimum capital of Rs 300 crore is required for firms to plan new banks. It also restricts the shareholding of a single entity or group of related entities directly or indirectly at 10 per cent of the paid-up capital of the private sector bank.

The capital requirement may not be an issue for big corporate houses harboring ambitions of getting a bank license but the shareholding of more than 10 per cent by the promoter entity may come up as a problem to them.

They still can qualify as RBI may ask them to reduce their holding gradually over a defined period," said the source.