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.
- 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.