The paper, which will be thrown open for public debate at various forums, is expected to contain the RBI's suggestions on universal banking. "The paper will contain the central bank's suggestions which are not final," a source said.

The central bank has already stated that a super-regulator is not needed for supervision and coordination between various regulators.

Earlier the central bank had appointed VV Desai, former director of the Asian Development Bank, to look into the various aspects of universal banking. The paper, which was submitted in October, has been discussed at the Reserve Bank board meeting in Hyderabad held in November.

Sources said that the RBI is in favour of introducing universal banking in a gradual and phased manner.

"The high level of non-performing assets in the banking system is a matter ofconcern and will be looked into before universal banking is introduced. Moreover, the RBI will seek opinion about various reserve and legal requirements as and when universal banking is introduced," a source close to the Reserve Bank said.

"The discussion paper will seek views from various experts before the RBI makes a final decision on the subject," the source said.

The Khan committee had recommended a gradual move towards universal banking and called for the evolution of an enabling regulatory framework for this purpose. Among other things, the committee had recommended consolidated supervision of banks and institutions, reduction of banks' cash reserve ratio to international standards and phasing out of statutory liquidity ratio.

The committee had also recommended the need for removal of ceiling on mobilisation of resource by DFIs, stipulating a suitable level of statutory liquidity ratio on incremental fixed deposits for DFIs and granting AD licence to DFIs.

The feeling within the Reserve Bankis that the time is not right for gainful mergers between banks, and banks and institutions as each is playing a niche role for itself and the prevailing system will continue for sometime until legal reforms are carried out.

Sources said that there were certain regulatory issues that needed to be addressed to make harmonisation successful.

First, banks are subject to CRR stipulation on their liabilities while DFIs, on the other hand, face no such pre-emption on their funds.

Second, though instrument-specific restriction on resource mobilisation by development financial institutions by way of term deposits, term money borrowings, CDs and also inter-corporate deposits have been replaced with umbrella limits, DFIs still do not enjoy the advantage of branch network for resource mobilisation. This in effect curtails DFIs' ability to raise low-cost deposits.

Along with this is the fact that with larger part of new loans going to capital-intensive projects, development financial institutions need long-termresources. However, on account of interest rate uncertainties, institutions are finding it easier to raise short-term resources.