Frame new law for Islamic banking: Reserve Bank of India

Source: Financial Chronicle

Putting an end to the speculation on allowing Islamic banking in the country, the Reserve Bank of India (RBI) governor, D Subbarao on Tuesday said the current Banking Regulation Act does not permit Islamic banking and that the government will have to bring in a new law if it wants to introduce it in the country.

The governor was answering a question on Islamic banking in a press conference after announcing the second quarter review of the Monetary policy 2012 on Tuesday.

“The current Banking Regulation Act does not permit Islamic banking as the interest component here (in India) is an important one. We cannot 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, som there are a number of issues…,” said Subbarao.

“Should the government intend to carry Islamic banking, there will have to be a new law for this,” he added.

According to principles of Islamic banking, interest is not allowed under Shariah law as it’s equated with usury. Instead, lenders get a share of any profit made by the borrower, while having to absorb any losses.

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