Headed by YH Malegam, the panel will comprise Industrial Finance Corporation of India (IFCI) chairman PV Narasimham, economist VV Desai and National Stock Exchange managing director RH Patil.

"The financial institutions had been brought under the purview of the Reserve Bank some time back. However, unlike banks which are governed by the Banking Regulation Act (BRA), there are no specific guidelines in place for regulating the development financial institutions (DFIs). The informal group will look into these aspects and make suggestions," an RBI source said.

The group will not, however, go into the issue of universal banking. The RBI had last year instituted the one-man SH Khan panel to look intoharmonising the role and operations of development financial institutions and banks.

Subsequently, the central bank circulated a discussion paper on universal banking.

Sources said that the need to frame regulations for DFIs could have been prompted by the spate of writeoffs which some of them have done for certain corporates. The issue had snowballed into a major controversy with Parliament debating it heatedly.

The RBI had brought DFIs and refinance institutions within the supervisory jurisdiction of the Board for Financial Supervision (BFS) in April 1995. Subsequently, two rounds of on-site inspections have taken place at the term-lending institutions as well as RFIs like Nabard and National Housing Bank (NHB). "A lot of skeletons tumbled out of the cupboards of the institutions during the inspections. Hence the need to document a regulatory framework. The informal group will come out with specific recommendations in this regard," sources said.

Two areas where banks and DFIs get different treatmentfrom the central bank are offsite supervision and Camels (an acronym for the RBI's financial health and management rating system). As part of the new supervisory strategy piloted by BFS, the department of banking supervision of the RBI set up an offsite surveillance system for banks in 1995. However, it is yet to be put in place for DFIs.

Similarly, two supervisory rating models based on Camels and CACS (capital adequacy, asset quality, compliance and systems) which have recently been introduced for domestic commercial banks and foreign banks operating in India are not yet applicable to DFIs. These ratings enable RBI to identify the banks whose condition warrants special supervisory attention.

The central bank, however, is in the process of working out the asset liability management (ALM) guidelines for DFIs. It had introduced draft ALM guidelines for banks in September 1998 and subsequently the final norms were put in place.

As far as prudential norms are concerned, both banks and DFIs are nowsubjected to capital adequacy norms.

Both banks as well as DFIs are required to maintain a risk-weighted capital adequacy ratio of eight per cent which will be raised to nine per cent from March 31, 2000.

The RBI also introduced exposure norms relating to a single corporate or a group of borrowers for DFIs in 1997. In fact, there is no differentiation between banks and DFIs in this regard. While the exposure to a single borrower has been capped at 25 per cent of net-owned funds, for group borrowers it is pegged at 50 per cent (with an additional 10 per cent for infrastructure projects).