While Gupta felt "the present time is not appropriate" for a move towards universal banking, Khan favoured immediate steps for development financial institutions (DFIs) to get into commercial banking to meet the global competition.

The "referee", Reserve Bank of India deputy governor SP Talwar, reiterated the central bank stance that there is a link between development of debt markets and efficacy of DFIs.

The "debate" between the former and present chief of IDBI took place at a seminar on "harmonising the role and operations of DFIs and banks" organised jointly by IDBI and ICICI--the first of a series of public discussions planned by the RBI on the subject. The seminar was attended by the "who's who" of the Indian financial sector.

Defending the Reserve Bank'sproposal of framing a five-year transition period, Talwar said that the fiscal consolidation would be complete within the next five years facilitating reduction in banks' reserve requirements. According to him, the DFIs should continue to play a pivotal role in developing the debt markets as investors do not have much confidence in corporate debt.

He, however, made it clear that there is no legal obstacle to the approach to universal banking.

"Universal banking is a desirable concept in the long term. However, given the current state of economic development, the present time may not be appropriate for moving towards it," Gupta said, adding that given the current economic environment, development banking has not yet lost its relevance.

Khan, who headed the working group on the issue, dismissed the RBI's proposal for a five-year transition period for DFIs opting to convert themselves into universal banks on the ground that "eight years of reforms have passed and the DFIs cannot wait for five more years".He also rejected the RBI view that the DFIs have a special role till long-term debt markets improve in terms of liquidity and depth.

"All-India financial institutions should define what exactly they want to be and should have flexibility to enter other areas including universal banking... I also strongly oppose the case-by-case approach which is proposed by RBI to allow the DFIs to enter universal banking," said Khan.

The former IDBI chief warned that any delay on part of the RBI in allowing DFIs to become universal banks would damage them. "Instead of trying to avoid the CRR and SLR, the financial institutions should learn the skill to manage their business with them," said Khan.

In stark contrast, Gupta said: "We believe development banking has not yet lost its relevance. For some time at least, there is a need for DFIs which will take a long-term view and provide risk capital to industrial projects."

"As I see it, harmonisation issues would essentially translate to debate on the future role ofDFIs, their access to sources of cost-effective finance for this purpose and the attendant regulatory and supervisory framework," he said.