China's asset custody industry developed rapidly in 2013 as banks sought a new growth engine during the process of interest rate liberalization, the China Banking Association said on Monday.

People's Bank of China Governor Zhou Xiaochuan reiterated on July 10 that China is likely to have fully liberalized interest rates within two years.

As a result, domestic banks will have to develop intermediary businesses, such as asset custody services, to make a profit, rather than relying heavily on interest rate margins.

Wang Junshou, deputy director of the general office of the China Banking Regulatory Commission, told a news conference on Monday: "The asset custody sector is a rising industry. It will propel the transformation of Chinese banks."

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Custodial services will generate a steady income for commercial banks without tying up their principal. As one of the fastest-growing emerging businesses of commercial banks, custodial services offer the most scope for development and innovation, the CBA said in its annual development report for the industry.

Custodial services can include settlement, escrow and safekeeping services.

CBA Executive Vice-President Yang Zaiping said: "Financial disintermediation is an inevitable trend and will squeeze bank profits. The banks must find new growth opportunities from direct financing. Asset custody services will help commercial banks shift to a business model of low capital use and sustainable development."

As of March 31, the banking industry's total custodial assets stood at 38.5 trillion yuan ($6.2 trillion), up 52 percent year-on-year.

Custodial assets grew 56 percent last year to almost 35 trillion yuan, according to the CBA.

Out of that 35 trillion yuan, which accounted for 23 percent of the banking sector's total assets, custodial services for wealth management products of commercial banks accounted for 8.13 trillion yuan, preservation of trusts' capital 6.07 trillion yuan, insurance funds trusts 4.76 trillion yuan, and escrow services for securities companies 4.6 trillion yuan.

Total custodian fees of the 18 commercial banks that offer such services increased 48 percent last year to 31.46 billion yuan, according to the association.

The sector is largely self-regulated. Liu Shujun, general manager of the asset custody department at Bank of Communications Co Ltd, said laws should be drawn up to regulate the asset custody industry and a specialized supervisory department should be set up.

He also suggested the CBRC and relevant commercial banks should establish a unified technology system for asset custody.