We have already made progress and are in the forefront in respect of legal reforms, Dr Reddy said, adding that there is much scope to carry out the legal process.
Dr Reddy also opined that the legal framework for the financial system should be designed in such a way that it gives incentive compatible for economic activities.
Further, enforcement of laws should have also been incentive-compatible. Institutional responses should be result oriented in the context of law, he said.
Dr Reddy also mentioned that the central bank has also suggested to incorporate lenders liability in financial practices.
This could have been in sync with the concept of borrowers liability, he stated. If borrowers fail to pay up there are certain remedies but what happens when lenders do not adhere to their responsibilities, he said.
He said that as per the recommendation of the Narasimham Committee-II report on banking sector reforms in 1998, the RBI has already started divesting its stakes of the financial entities, which it regulates.
RBI had recently completed its divestment of Securities Trading Corporation of India (STCI) and Discount & Finance House of India (DFHI).
He also mentioned that in a bid to clean up RBIs balance sheet, RBI has transferred loans liabilities of Industrial Development Bank of India, Export Import Bank of India, Small Industrial Development Bank of India and Industrial Investment Bank of India to the Centre.
It could be pertinent to note that RBI, had in its half-yearly review of the monetary and credit policy for 2001-2002, proposed changes in the Negotiable Instruments Act (NIA), 1881.
This, is now under consideration, he stated. There are also talks about enforcing Foreclosure Law, Creation and Enforcement of Securities Interest Banks Bill 2001; and Information Technology Act 2000 with due amendments to the Bankers Book Evidence Act 1891.
However, he pointed out that a comprehensive regulation for payment system is yet to come. He mentioned that though RBI has given instructions from time to time for electronic trading mechanism, a comprehensive legal format is yet to be formulated.