China should allow private banks to grow "like bamboo shoots after a spring rain," and play an important role in bolstering innovation and entrepreneurship, said Mei Xingbao, the external supervisor at the Bank of China, on Monday.

Mei, who is also a member of the national committee of the Chinese People's Political Consultative Conference (CPPCC), made the remark during an interview by China News Service.

China Minsheng Bank, founded in 1996, was China's first national joint-stock commercial bank "in which non-public enterprises hold a majority stake." In the nearly two decades since the founding of the bank, no private capital has been given the green light by the government to set up a new bank.

During the annual "Two Sessions" in March 2014, when deputies to the National People's Congress and CPPCC members met in Beijing, Shang Fulin, the chairman of the China Banking Regulatory Commission, revealed that China would begin allowing the establishment of private banks in a pilot program.

By the end of 2014, a total of five private banks had been given the go-ahead from authorities. In January this year, Shenzhen-based WeBank, the first private bank to have begun operation after the launch of the pilot program, issued its first loan, worth 35,000 yuan ($5,600), when Premier Li Keqiang visited the bank.

Mei said financial institutions, including small and medium-sized banks initiated by private capital, will help meet China's growing financing needs, as the government encourages innovation and entrepreneurship from the general public. They will also support China's efforts to build a more well-off society in an all-round way, he added.

Only five private banks were given the nod in 2014, Mei said, calling on the government to allow private financial institutions to spring up "in their tens of thousands" across the country.

The government should also enhance the construction of financial infrastructure, such as opening up credit systems, payment and settlement systems and trading centers to private capital, so that they can have client information at their disposal.

Mei also said that private financial institutions that failed in their operations should be allowed to file bankruptcy and exit the market. "It should be the new normal," he added.

The establishment of a deposit insurance system will help facilitate that exit mechanism, enable small and medium-sized financial institutions to enjoy fair competition with their bigger rivals, and also better protect clients, Mei says.

He also called on China to roll out the deposit insurance system "as soon as possible."