The Reserve Bank of India has decided not to pursue a proposal to introduce Islamic banking in India, PTI reported on Sunday. Islamic or Sharia banking is a system of finance in which interest is not charged.
“Taking into account the wider and equal opportunities available to all citizens to access banking and financial services, it has been decided not to pursue the proposal [to introduce Islamic banking] further,” the central bank said in response to a Right to Information query by a PTI correspondent.
The proposal to introduce Islamic banking was first made by a committee on financial sector reforms, chaired by former Reserve Bank of India Governor Raghuram Rajan, in 2008. “Certain faiths prohibit the use of financial instruments that pay interest,” the committee had said. “The non-availability of interest-free banking products results in some Indians, including those in the economically disadvantaged strata of society, not being able to access banking products and services due to reasons of faith.”
On the instructions of the Centre, an inter-departmental group was set up to examine the legal, technical and regulatory issues for introducing interest-free banking in India. In February 2016, the group’s report to the finance ministry recommended that banks have an “Islamic window” to gradually introduce Sharia-compliant banking.