Reserve Bank governor D. Subbarao said on Thursday that “Islamic banking” was not possible within the country’s existing legal framework.
Speaking to reporters after a RBI board meeting, Dr Subbarao said Islamic banking did not involve payment of interest and was based on sharing of both profit and loss. This was not consistent with the protection of depositors which he said was the prime aim of the RBI.
“Our banking principles are based on payment of interest to depositors,” said Dr Subbarao.
Kerala’s LDF government had earlier decided to start an Islamic bank based on Sharia principles, but had been told not to do so by the state high court.
Dr Subbarao said the courts must determine if governments could start banks based on religious principles. This could be possible if special legislation was enacted, he said.