However, the RBI is in favour of setting up of an SRO (self-regulatory organisation) -- on the lines of the Khan panel recommendation -- to ensure uniformity in regulatory treatment in the financial sector.

The central bank has left the decision to form such a committee (SRO) or revamp the existing arrangements entirely with the banks and the financial institutions.

In a ``Discussion Paper on Harmonising the Role and Operations of Banks and Financial Institutions" released by the RBI on Wednesday, the central bank said that such a committee may be a formal or an ad-hoc one, as warranted by the circumstances.

The RBI should be available to actively interact with this committee without being intrusive or diluting its role as a regulator and supervisor, the paper added.

The discussionpaper draws upon the recommendations made by the Narasimham Committee, which submitted its report on banking sector reforms in December 1997 and on the Khan Working Group's recommendations concerning harmonising the role and operations of banks and DFIs, submitted in May 1998.

In view of the increasing overlap in the functions being performed by various participants in the financial system, the Khan working group had recommended the establishment of a function-specific regulatory framework in the form of a "super regulator" that targets activities and is institution-neutral.

While discouraging on-site supervision, which should be undertaken mainly to oversee the quality of self regulation, the group had recommended that this supervisory authority should undertake primarily off-site supervision based on periodic reporting by the banks or financial institutions.

The "draft proposals" concerning the regulatory and supervisory aspects of banks and DFIs, set out in section seven of this discussion paper,recommend that the harmonisation in the working of various institutions should be left to the initiative of the organisations themselves.