The Reserve Bank of India (RBI) governor, Mr. D.Subbarao on recently said the current Banking Regulation Act does not permit Islamic banking & that the central government will have to bring in a new law if it wants to introduce it in India.
The governor Mr. D.Subbarao said, “The current Banking Regulation Act does not permit Islamic banking as the interest component here (in India) is an important one. We can not allow banks to take risk position in a company’s business (which is there in Islamic banking). Also, regulation (of banks) in case of Islamic banking is through a Shariah board, there are a number of issues...!Should the central government intend to carry Islamic banking, there will have to be a new law for this”.
According to principles of Islamic banking, interest is not allowed under Shariah law as it is equated with usury. Instead, lenders get a share of any profit made by the borrower, while having to absorb any losses.
Mr. H. Abdur Raqeeb, Convenor, National Committee on Islamic Banking & general secretary, Indian Centre for Islamic Finance, said, “No new law is required for launching Islamic
banking in India. The government, by passing an executive order, can accommodate participatory Islamic banking in the same Banking Regulation Act as done in United Kingdom, Singapore & Japan. However, tax laws would need to be amended.“
Mr. Raqeeb added, “In 2008, a high level committee on financial sector reforms headed by Mr. Raghuram Rajan (at present, the chief economic adviser) had said that interest free finance can be introduced in the country's banking system without any systemic risks“
The finance ministry had recently written to RBI asking it to examine the possibility of making the interest free model part of India's banking system.
Src: mydigitalfc.com
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