Reserve Bank of India is looking at options to bring the much-debated Islamic banking to India. Considering the complex issues involved in the functioning of the Islamic banking system, RBI has initiated correspondence with the Centre, seeking the possibility of amending the banking regulation Act or bringing in new rules to pave way for establishment of Islamic banking in the country. The bone of contention, according to RBI, is the interest payment, which is forbidden by the Islamic banks, operating in many developed economies, including European markets like France, Germany and the UK.
RBI governor D Subbarao said, ?As per existing laws, banks are required to borrow and deposit in RBI which will have elements of interest rates. While banks need to give interest for the money they borrow from RBI, they will have to accept interest for the money, they deposit with apex bank, through reverse repo window. Islamic banking, prevalent in other countries do not permit taking interest and hence, under the existing banking regulation Act, it is not possible to establish Islamic banking.?
According to industry experts, the Islamic banking when introduced would channalise huge investments from West Asia.
Subbarao said it is inaccurate to say the government starts big reform process only when the country plunges into crisis. ?Reforms process has been a continuous process, It was erue that in 1991 the country witnessed a reforms blitzkrieg, but the process was continuing through some eav reforms including VAT,? he said.