Under the present set-up, financial institutions IDBI, Nabard and NHB are also performing supervisory functions over state finance corporations, regional rural banks and housing finance companies, respectively. The Narasimham Committee had, in a restricted context, recommended that the supervisory functions of these entities should be brought under BFS.

"The recommendation needs to be accepted in principle by bringing in RRBs being supervised by Nabard, housing finance companies by NHB and SFC by IDBI under a common overall framework.

Such a framework, the RBI argued, would enable RFIs to focus better on developmental and refinance functions while ensuring regulatoryconsistency between banks, financial institutions and non-banking finance companies.

While stressing on the need to enable financial institutions to focus better on developmental and refinance functions, the Reserve Bank has said that for such a common supervisory mechanism to work effectively, it is necessary to confine supervision to strengthening the internal control measures of banks and FIs, and to a few financial parameters.

"It may also be necessary to rely to a greater extent on stricter audition and disclosure standards so that depositors can make informed judgements and accept greater responsibility for their investment decisions," the discussion paper said.