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China's banking regulator said on Wednesday that four more village banks will soon begin operation to help upgrade the country's under-developed rural banking sector.

Large financial institutions are interested in developing in the countryside, with a dozen financial institutions submitting applications for rural expansion, said China Banking Regulatory Commission (CBRC) chairman Liu Mingkang on the sidelines of the ongoing parliamentary session.

Foreign-funded banks including the HSBC and Standard Chartered Bank are actively carrying out market research in order to be able to tap into the rural market, Liu said.

The CBRC has approved 6 pilot schemes in 6 provinces including Qinghai and Gansu. Two of them -- Huimin village bank and Huimin finance company -- began operations last Thursday in Yilong county of southwest China's Sichuan Province.

Liu stressed the need to improve the quality of applicants, saying that despite the lower threshold on registered capital, quality standards for newcomers are very high.

He reiterated that rural banks cannot solve all rural financing problems, in particular loans for breeding and planting industries, if residential houses, collectively owned land and courtyards cannot be mortgaged.

"Once the mortgage problem is solved, productive enterprises will develop rapidly," said the chairman.

Chinese farmers and rural enterprises currently have few places to turn for funds to finance their business ideas.

Official figures show Chinese farmers rarely obtain loans of more than 5,000 yuan, much less than the personal or commercial loans accorded in the cities.

Policy makers hope commercial banks will team up with other private shareholders to establish lenders at county level or below and that farmers or small firms will band together to create new kinds of credit cooperatives, even in small villages.

At the end of 2006, the CBRC scrapped working capital limits for domestic financial institutions in rural areas so that banking networks could be developed in the countryside.

It also lowered the registered capital threshold to three million yuan (385,000 US dollars) for banks in counties and one million yuan in villages and towns.

Editor: Yan