The RBI doesn't just regulate banks — it decides who gets to be one. Every banking licence, every branch authorisation, every inclusion in the Second Schedule of the RBI Act is a regulatory decision that shapes the geography of Indian banking. And that geography has changed dramatically: from an era when opening a single branch in a Tier 1 city required months of approval, through the 25% unbanked-rural mandate that forced banks into villages, to the May 2017 rationalisation that finally gave well-capitalised banks general permission to open branches almost anywhere.
See also: Co-operative Banks (UCB licensing moratorium) | Regional Rural Banks (RRB branch licensing) | Financial Inclusion vs. KYC
Companion read: What the RBI Looks For When It Licences a New Bank — the criteria behind the licensing decisions, from the 1993 round that produced HDFC Bank to on-tap universal bank licensing, and why some applicants succeed while others are turned away.
The Centralisation Era (Pre-2006)
Before 2006, every branch required individual RBI approval. The January 2006 circular RBI/2005-06/280 (since withdrawn) began centralising the process:
"Banks will not be required to approach Regional Offices of Reserve Bank of India for 'licence'." Section 23 of the Banking Regulation Act, 1949 - Branch Auth...
Authorisations were valid for one year with a three-month extension. Miss the deadline and the permission lapsed automatically — "no further extension would be granted." Rural branch conversion into satellite offices was "generally not favoured" — the RBI didn't want banks downsizing their rural presence.
The Progressive Relaxation (2006–2013)
A chain of five circulars systematically loosened branch licensing, each referencing its predecessor:
December 2009 — Tier 3-6 freed: Branch Licensing for Tier 3-6 Centres RBI/2009-10/243 (since withdrawn) (11 downstream refs):
"Reserve Bank hereby permits domestic scheduled commercial banks to open branches in Tier 3 to Tier 6 centres (with population upto 49,999) without having the need to take permission from Reserve Bank in each case." Section 23 of the Banking Regulation Act, 1949 – Relaxations...
With a geographic directive: "At least one-third of total branches opened in Tier 3 to Tier 6 centres are in underbanked districts of underbanked States."
July 2011 — The 25% rural mandate: 25% Unbanked Rural Branch Mandate RBI/2011-12/113 (since withdrawn) (8 downstream refs):
"Banks should allocate at least 25 percent of the total number of branches proposed to be opened during a year in unbanked rural centres." Branch Authorization Policy - Opening of branches in unbanke...
The financial inclusion target that reshaped branch geography. For every three urban branches, one had to go to a village with no bank at all. The incentive: "For each branch in Tier 3 to Tier 6 centres of underbanked districts, authorisation will be given for a branch in a Tier 1 centre."
The May 2017 Rationalisation — General Permission
The Branch Authorisation Rationalisation RBI/2016-17/306 (since withdrawn) (31 downstream refs) completed the arc:
"Domestic scheduled commercial banks are permitted to open Banking Outlets in Tier 1 to Tier 6 centres without having the need to take permission from Reserve Bank of India in each case." Rationalisation of Branch Authorisation Policy- Revision of...
It redefined what counts as a branch: a "Banking Outlet" is "a fixed point service delivery unit, manned by bank's staff or its Business Correspondent, where services of acceptance of deposits, encashment of cheques or lending of money are provided for a minimum of 4 hours per day for at least five days a week."
Closure protection for rural areas remained: "Merger, closure and shifting of any rural Banking Outlet as well as a sole semi-urban Banking Outlet would require approval of the DCC/DLRC." The cities got deregulated. The villages stayed protected.
The Licensing Rounds
Beyond branch authorisation, the RBI periodically opens licensing windows for new banks:
- 1993-94: First private bank licensing round (produced ICICI Bank, HDFC Bank, Axis Bank, IndusInd Bank, and others)
- 2001-04: Second round (Kotak Mahindra Bank, Yes Bank)
- 2013-14: Third round (IDFC Bank, Bandhan Bank)
- 2015-16: Small Finance Banks and Payments Banks licensed (11 SFBs, 11 PBs initially)
- 2016 onward: On-tap licensing for universal banks and SFBs — no more periodic windows
The UCB licensing moratorium (2004-2014) — covered in the co-operative banks article — was the opposite story: the RBI stopped issuing new UCB licences entirely for a decade.
All Withdrawn — All Consolidated
Every branch authorisation circular in the relaxation chain (RBI/2005-06/280, RBI/2009-10/243, RBI/2008-09/496, RBI/2011-12/113, RBI/2011-12/283, RBI/2016-17/306) is now withdrawn, consolidated into the entity-specific November 2025 directions. But the amendment chain — from individual approval to general permission over eleven years — tells the story of how India's banking geography was deliberately reshaped through regulation, one circular at a time.
The February 2013 guidelines for licensing new banks in the private sector — which produced IDFC Bank and Bandhan Bank — opened the process to NBFCs and public sector entities for the first time through a non-operative financial holding company structure: RBI releases Guidelines for Licensing of New Banks in the Private Sector (PR_28191).
Last updated: April 2026