India’s central bank is likely to initially issue four new banking licences as part of a push to include more of the country’s population in the formal banking system, two people familiar with the matter said Thursday.

But, in a setback for several hopefuls, “the government doesn’t favor corporates which don’t have finance as one of their main businesses,” one of the people said, adding that most of the new licences will be issued to non-banking finance companies.

This means that conglomerates such as the Tata and Birla groups–which have large finance branches–could slip through the door.

But other companies, such as real estate developers which are reportedly keen as well, will be left out.

Analysts said the central bank may be looking at companies with deep enough pockets to run a bank successfully.

But “there are scores of large corporate with market capitalization above 100 billion rupees. The central bank will have to put in conditions to chose one over the other,” said Vaibhav Agrawal, vice-president of banking research at Angel Broking Ltd.

He added that, if a low cap on founders’ holding is kept as a criterion, the top three picks could be Larsen & Toubro Ltd., Mahindra & Mahindra Ltd. and state-owned Life Insurance Corporation through LIC Housing Finance Ltd.

The central bank’s move to open up the banking sector to more players comes at a time when the government is pushing forward with the reform process to stimulate the economy, which is slowing following a prolonged period of monetary tightening.

Last month, a panel of federal secretaries recommended opening up the multi-brand retail sector to foreign investment of up to 51%–the first major reform initiative by the current government, which has been under severe criticism for its reluctance to push through big-ticket reforms despite being returned to power with a majority in May, 2009.

The careful opening up of the banking sector to new entrants would reflect the Reserve Bank of India’s characteristically cautious approach toward reforms.

The central bank has historically been wary of granting licenses to the private sector because of apprehensions over controlling bad loans.

But it has also said it wants a larger number of banks to foster greater competition, and thereby reduce costs and improve service quality.

India is Asia’s most under-penetrated market for banking services, with about 50% of the 1.2 billion population yet to be covered under the formal banking system.

The banking system is dominated by 26 state-run lenders, which control nearly 75% of total assets. Twenty-one private sector banks account for about 20%-22% of assets while the remainder is split between some 34 foreign banks.

The RBI will soon issue draft guidelines on the new private banking licences and will seek comments from all stakeholders, RBI Deputy Governor Anand Sinha told reporters on the sidelines of a conference in Mumbai.

However, it isn’t clear whether the guidelines will mention how many licences will be issued.

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“The central bank may just give the number in the final draft that it would send to the government for approval, and that could be well stretch into December, when the winter session of parliament begins,” said the two people familiar with the matter.

The guidelines will come almost 16 months after Finance Minister Pranab Mukherjee first announced in his budget speech in February 2010 that the central bank would set such rules.

Late last year, the RBI submitted a set of draft rules to the finance ministry. In August 2010, it released a discussion paper but failed to gain any consensus on key issues of the entry of private companies into banking, capital adequacy frameworks and foreign share holding, among other issues.