The central bank has outlined its "views" at the discussion paper -- on the Khan working group's suggestions of harmonising the role and operations of development financial institutions and banks -- released on Tuesday.

The Khan working group had, in its report, suggested that the ownership of Small Industries Development Bank of India (Sidbi) should be transferred to the RBI or the government on the same lines as the National Bank for Agricultural and Rural Development (Nabard). It had also suggested that the Industrial Development Bank of India's (IDBI) shareholding in state finance corporations should be transferred to Sidbi in order to give it greater autonomy.

The central bank, in its discussion paper, has said that that transfer of ownership of Sidbi and other RFIs to thegovernment needs to be examined keeping in view the need for separation of the ownership and regulatory functions.

Finance minister Yashwant Sinha, while presenting the Union budget for 1998-99, had said that IDBI would divest its stake in Sidbi and the term lending institution's stake in state finance corporations (SFCs) would be passed on to Sidbi.

IDBI has, over the past few months, been lobbying hard with the Reserve Bank to take over its stake in Sidbi rather than pass it on to the Centre. The FI feels that if the Centre takes over the Sidbi stake, it would only issue bonds in favour of the institution instead of paying for the shareholding in cash.

The Khan Committee, in its report, has said that Sidbi should be accorded the same role and status as the nodal/co-ordinating agency for financing of small and medium industries as is now available to Nabard in the field of agricultural development. The committee said that Sidbi would need to be converted into an autonomous entity assigned primarilywith promotional and developmental work.

On the regulatory side, it has been pointed out that quite a few refinancing institutions (RFIs) also perform the role of DFIs like for instance the Power Finance Corporation (PFC), but are subject to non-banking finance companies (NBFC) regulations. The Reserve Bank paper says that "hence, it will be neccessary to identify those DFIs/RFIs, which are yet to be subjected to NBFC regulations, and have a category which would be well defined."

A case has also been made for bringing SFCs and regional rural banks (RRBs) under a common regulatory framework, be it within the ambit of the Board for Financial Supervision (BFS) or under a new supervisory body. As of now, RRBs are supervised by the National Bank for Agriculture and Rural Development (Nabard) with SFCs by Industrial Development Bank of India (IDBI).

"For such a common supervisory mechanism to work effectively, it is neccesary to confine supervision to strengthening the internal control measuresof banks/FIsand to a few indentified financial paramenters. It may also be neccesary to rely to a greater extent on stricter auditing and disclosure standards so that depositors can make judgements and accept greater responsibility for their investment decisions," the paper said.