RBI has a discussion paper on opening up banking for entry by private banks. See responses by Jayanth Varma in the Financial Express and by Ila Patnaik in the Indian Express. Also, a less coherent response from me on TV.
A nice feature of the above RBI URL is that it also links to the January 1993 guidelines on entry of new private banks and the January 2001 guidelines.
Striking a balance between avoiding crooks and theft, and ensuring competition, is hard. It's easy to go to either extreme, but the puzzle lies in finding the middle road. These are the political and governance challenges that India must now grapple with.