RBI deny Islamic Banking in India

by khalid on 21/05/2010 · 4 comments

Kerala Government took the initiative to set up a joint venture financial institution based on Islamic banking principles some time back. The Reserve Bank was considering the possibility of allowing Islamic Banking in India on the backdrop of Kerala Government initiative but under the present laws Islamic Banking are not permitted as under the Indian banking rules, depositors have to be paid interest for their money in banks, which is not permitted by Islamic banking principles, RBI Governor D Subbarao said.

However, RBI was examining the possibility of allowing Islamic financial institutions to function as non-banking finance companies (NBFCs). According to Islamic rules (Sharia), charging or paying interest rates is not allowed. In India , there are two types of non-banking finance companies (NBFCs), one which accept deposits and the one which does not. RBI Governor D Subbarao said the Centre Government will have to enact a separate legislation in case Islamic banking is to be allowed in the country.

The proposal of Kerala Government was stayed by the Kerala High Court, while admitting a petition filed by Janata Party leader Subramanian Swamy on the constitutional validity of the proposal a few months ago.

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{ 4 comments… read them below or add one }

Shabnam Sultan May 22, 2010

Islamic banking would have been a good initiative by Reserve Bank would have benefitted muslims a lot.

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khalid May 22, 2010

In fact Muslims were waiting to see a positive response by RBI but leaders like Subramaniam Swami who are so negatively biased towards Muslims that they can do anything against them, he filed a PIL in Kerala High Court challenging the setting up of an Islamic Financial Institution in the state on the lines of Islamic Banks with the support of Kerala State Industrial Development Corporation (KSIDC).
Though Islamic Banking is very successful in many parts of the world and in this recent Recession it is proved that interest free banking is the only solution.

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Arvind Singh May 25, 2010

Interest-based transactions are forbidden in Islamic banking, it does not forbid all profits on capital. As enshrined in the Verse 2:275 of the Holy Quran, financial activities under Islamic banking are enabled to cause value addition. http://www.lawisgreek.com/india-legal-news-separate-law-for-islamic-banking/

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khalid May 25, 2010

RBI is right on his part that Indian Banking Law is not allowing to permit Islamic Banking in India, now it is lagislature which can change the law for respecting the sentiments of second largest community of India. NBFC’s will not fulfill the whole purpose.
Thanks Arvind for your nice comment, keep in touch.

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