China plans to allow foreign banks to distribute products for domestic fund houses, opening up a new revenue source for overseas lenders in the fast-growing economy, sources close to the situation said on Thursday.

China Banking Regulatory Commission has agreed in principle to allow foreign banks, starting in the fourth quarter of this year, to kick off fund distribution businesses for China-based fund management companies, the sources told Reuters.

The plan still needs approval from the China Securities Regulatory Commission, the country's top securities regulator, which is revising rules to pave the way for foreign banks to enter the business, the sources said.

Currently, foreign banks in China are only allowed to distribute insurance policies for China-based insurers.

Foreign banks have been lobbying Beijing for more than a year to allow them to distribute mutual funds, which are becoming increasingly popular among Chinese investors amid a stock market bull-run started early last year.

There are about 60 fund management companies in China, half of which are Sino-foreign joint ventures, where the mutual fund industry had grown to around 1.8 trillion yuan ($238.4 billion) as of the end of June compared with almost nothing just a few years ago.