Separate law needed for Islamic banking in India: RBI

THIRUVANANTHAPURAM - Islamic banking in India is not possible now with the current banking principles based on interest payment, but it can be done though a separate legislation, Reserve Bank of India Governor D. Subbarao said here Thursday.

“With the present set of Banking Regulation Act, Islamic banking just cannot take place because many of the banking principles in place are based on interest payments. However, Islamic banking is possible through a separate legislation,” Subbarao told reporters here at the end RBI Board meeting.

Asked about the Kerala High Court ruling asking the state government and its agencies to keep away from a new company that has been registered under the Sharia laws of banking, he said: “Since this is a constitutional issue of whether a government can or cannot enter, we have nothing to say on that.”

Last month a division bench of the high court asked the Kerala government and its organisations to keep off from the proposed Islamic Bank which has begun preliminary operations in the state.

Former Union Minister Subramaniam Swamy had petitioned the court against the Kerala State Industrial Development Corporation taking the lead to start an Islamic bank with private players.

On whether a non-banking financial company can function according to the Sharia laws of banking, Subbarao said the RBI is examining the issue and will soon take a decision.

–Indo Asian News Service