On the existing arrays of laws in the banking sector, he favoured a single legislation to remove inconsistencies.
Subbarao also asserted that the proposed financial sector reforms should be driven more by the sectoral regulator Reserve Bank of India than by a legislative panel.
Policy direction should drive the work of the proposed financial sector legislative reforms commission and not the other way around, Subbarao said.
The RBI Governor was delivering the inaugural address at the two-day Bancon 2010, one of the premier annual bankers meets.
He said there is an urgent need to streamline the plethora of regulations governing the banking system in the country.
There is a whole lot confusing laws out there.
But it has served the system well by helping maintain an orderly banking system.
The Banking Regulation Act has not only stood the test of time, but several of its provisions have all helped the Reserve Bank in preventing crises and maintaining financial stability", he said.
"But the recent global financial crisis has taught us that our regulations have to change according to the need of the time . . .", Subbarao said.
Arguing that there is an urgent need for streamlining and fine-tuning the existing array of laws, the Governor said, we need to do so to level the playing field as the existing laws are uneven.
A single legislation will bring about clarity and do away with the inconsistencies currently governing the banking system.
"The prime motivation for rewriting the laws should be to integrate the various statutes, reflect the lessons from the (recent global financial) crisis and aid inclusive growth", Subbarao said.
The global financial crisis threw up a number of areas requiring significant legislative action either because there is no legislation or because the prevailing legislation is inadequate, he said.
Subbarao said the decision to set up a financial sector legislative reforms commission to rewrite and clean up the financial sector laws, to bring them in line with the requirements of the sector, was very timely and vital.
However, the Governor was quick to add, "I have one caveat. It is important to recognise that bringing about policy changes or regulatory architecture cannot be the remit of a legislative reforms commission".
"Such changes have to be debated as a prelude to the work of a commission so that the commission has a clear policy direction", the RBI Governor said.
"In short policy direction should drive the work of the proposed legislative commission and not the other way around", Subbarao said.
The country's 81 banks -- out of which 24 are state-run, 21 private and rest 34 are foreign banks, are governed by a number of laws.
The current statutory arrangement we have is a baffling plethora of laws governing different segments of the banking industry, Subbarao said.
He explained that while the nationalised banks are governed by the Banking Companies (Acquisition and Transfer of Undertaking) Acts of 1970 and 1980, State Bank of India and its subsidiaries are governed by their respective statutes.
When it comes to private sector banks, he said they come under the purview of the Companies Act of 1956 and the Banking Regulation Act of 1949.
He said foreign banks which have registered their documents with the registrar under Section 592 of the Companies Act are also banking companies under the Banking Regulation Act.
The Governor said even certain provisions of the Banking Regulation Act have been made applicable to public sector banks.
"Similarly, some provisions of the RBI Act too are applicable to nationalised banks, State Bank of India and its subsidiaries, private sector banks and foreign bank", he told the meeting.
Image: D Subbarao