RBI has proposed the opening of an Islamic window in conventional banks for gradual introduction of Sharia compliant or interest free banking in the nation
- Both GoI and RBI are exploring the possibility of introduction of Islamic banking for long to ensure financial inclusion of all sections of society that remain excluded on account of religious reasons
- Given the complexity of Islamic finance and numerous regulatory and supervisory channels and that Indian banks have no experience in the field, Islamic banking may be introduced in a gradual manner
- Conventional banking products may be needed for introduction through Islamic Window of conventional banks following necessary notification by the government
- “Introduction of full-fledged Islamic banking with profit-loss sharing complex products may be considered at a later stage on the basis of experience gained in course of time,” the RBI has told Finance Ministry in a letter
- Islamic or Sharia banking is a finance system based on not charging interest
- Charging interest is prohibited under Islam
- The apex bank’s proposal is based on examination of legal, technical and regulatory issues regarding feasibility of introducing Islamic banking in India on the basis of recommendation of the Inter Departmental Group (IDG).
- RBI also prepared a technical analysis report sent to the finance ministry
Work areas include the following:1. Operationalisation of Sharia boards and committees,
2. Feasibility of extending deposit insurance to Islamic banking deposits,
3. Identifying the financial risk and suggesting appropriate accounting framework for these products
4. In the annual 2015-2016 report, the apex bank has said that some sections of Indian society remain excluded for religious reasons that preclude them from using banking products with element of interest
5. The plan for Sharia bank was opposed by certain political and non political groups
6. The Committee on Financial Sector Reforms headed by former RBI governor Raghuram Rajan opined a closer look at interest free banking in the nation.
