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Legal jams hampering financial system: RBI

Delays owing to 'inefficiencies' and 'bottlenecks' in the legal system can seriously jeopardise the debtor-creditor relationship and adversely impinge upon the smooth functioning of the financial system, according to Reserve Bank of India (RBI) report on 'Trend and Progress of Banking in India for the year 2001-02'.

The report said the current stalemate in the amendment of various outdated laws had left banks with no recourse against willful defaulters and made them handicapped in realising dues from the borrowers.

The judicial system must display an understanding of financial transactions for banks to rely on a fair and speedy enforcement of their contractual rights and obligations, it said.

Though a number of steps had been initiated to amend the provisions of existing laws to make them compatible with the changed environment, a majority of them were pending for approval before the law makers.

In this context, RBI emphasised on a fast development of institutional mechanism like a credit information bureau (CIB) for sharing credit information on borrowers of banks and financial institutions.

The CIB facility would not only help mitigate the credit risk involved in lending but also ensure that unscrupulous borrowers were unable to play one bank against the other.

UNI

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