Tencent Holdings, one of China's largest Internet companies, has been granted a license by the nation's top banking watchdog to set up a private bank with headquarters in Shenzhen, Guangdong province, China National Radio reported.

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It will be one of five private banks in a pilot program approved by the central government in January and which is widely regarded as a major step to open up the country's closely guarded banking sector.

The radio report cited sources from the Shenzhen Financial Service Office as saying Tencent Holdings is employing experienced bankers and mapping out its strategies.

According to the China Banking Regulatory Commission, the private bank jointly invested by Tencent and Shenzhen Baiyeyuan Investment Co will focus its business on wholesale deposits and small loans.

Tencent declined to comment, according to China National Radio.

Li Daokui, an economist at Tsinghua University, was quoted by the broadcaster as saying the private banks should serve communities, such as by providing loans to barber shops, restaurants and fruit sellers, as community banks do in the United States.

Chen Zhiwu from Yale University, an expert on financial theory, securities valuation, emerging markets and China's economy and capital markets, said China needs at least 20,000 to 30,000 banks to serve different communities nationwide, which leaves plenty of room for new private companies to develop.

He proposed that the pilot program should help provinces that are short of financial facilities.

"The community banks are thriving in the less developed states in the US," said Chen, according to the radio report.