Islamic Window to be considered in banks

The Reserve Bank of India (RBI) in a letter to the finance ministry has put forward a proposal to open an ‘Islamic window’ in conventional banks. The move is a stepping stone to its consideration of introducing Islamic banking in the country.

The RBI and the Union Government have been exploring the possibility of  introducing the Sharia-based foundation since quite long in order to include even those sections of the society that remain outside the banking circuit due to religious reasons.

The information was revealed when a copy of the letter was sent to Press Trust of India, in response to an RTI filed by it.

Response of RBI to the RTI query

  • Islamic banking may be introduced in the country in a gradual manner, considering the inexperience of Indian banks in the sphere and complexities of Islamic finance.
    • At first, only products similar to those of conventional banking will be considered for introduction through an Islamic window at the conventional banks.
    • The full-fledged introduction of Islamic banking will be considered at a later stage, based on the experience gained during the time.

Islamic Banking

  • It is a financial institution that is based on the principles of the Islamic law (Sharia). It is also known as Sharia compliant finance.
    • All its dealings, transactions, investment focus and business approach are derived from the Sharia law.
    • Its governing principles are as follows:
    – Absence of interest–based transactions
    – Introduction of Islamic tax, zakat
    – Avoidance of economic activities involving oppression and speculation
    – Discouragement of production of goods and service that go against the Islamic valueIn order to introduce Islamic banking, RBI still has to put a lot of things into place. For instance:
  • Operationalisation of Sharia boards and committees
    • Exploring feasibility of extending deposit insurance to Islamic banking deposits.
    • Identifying the financial risks in such a framework
    • Formulating appropriate criteria for Islamic products.The plan, however, of introducing the Sharia-based banking structure has found stiff opposition from certain political and non-political groups.

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