Mumbai, Aug 20 (IANS): The Reserve Bank of India (RBI) will issue licences to small finance banks to operate next month, RBI Governor Raghuram Rajan said on Thursday.

On Wednesday the RBI issued the "in principle" approval to 11 applicants to set up payment banks.

The new entities - small finance banks and payment banks - are not threats to the existing banks, Rajan said here at a conference organised by the State Bank of India (SBI).

Small finance banks are similar to universal banks but would operate on a small scale.

According to him, payment banks and small finance banks would help in expanding financial inclusion.

Some months back Rajan said the Indian banking sector was all set to see a sea change in two years with several new institutions and existing government banks undergoing a great change.

He said new institutions like payment banks and small finance banks would be in the market.

The central bank has got 41 applications for payment banks and 72 applications for small finance banks.

On Wednesday, the RBI set the ball rolling by granting 'in principle' approval to 11 applicants, including Reliance Industries Ltd, Aditya Birla Nuvo Ltd, Department of Posts and Cholamandalam Distribution Services Ltd to set up payment banks.

The others who got the approval are Airtel M Commerce Services Ltd, Fino PayTech Ltd, National Securities Depository Ltd, Dilip Shantilal Shanghvi, Vijay Shekhar Sharma, Tech Mahindra Ltd and Vodafone m-pesa Ltd.

Reliance Industries has roped in banking giant SBI as an active equity partner with 30 percent stake in the payment bank venture.