The RBI governor, Dr D. Subbarao, said on Thursday that Islamic banking was not possible within the existing legal framework of the country.
While talking to mediapersons after the meeting of the RBI board here, Mr Subbarao said that Islamic banking did not involve payment of interest and was based on s
haring of both profit and loss. This was not consistent with the protection of depositors which was the prime aim of the RBI, he said.
“Our banking principles are based on payment of interest to depositors,” said Dr Subbarao.
The LDF government in Kerala had decided earlier to start an Islamic bank based on Sharia principles with private agencies but had been told not to do so by the state High Court.
Dr Subbarao also said that it was for the courts to decide the constitutional propriety of governments starting banks based on religious principles. The RBI director, however, added that Islamic banking was possible if a separate legislation was brought into effect.
The RBI governor also said that the central bank was worried about inflation despite the resurgence of positive sentiment in the economy. “Supply side pressures are abating but demand pressures are building up,” Dr Subbarao said, and added that the inflation rates for March could be revised to touch double digits.