With the appointment of new RBI Governor Urjit Patel , things are taking a different turn , first was demonetisation and now the introduction of Sharia Banking which is being introduced in the banks.
An Islamic or Sharia banking is that type of finance system which is based on the principles of not charging “interest” which is prohibited in Islam.
With this the RBI has gradually introduced a very first “Islamic Window” in several conventional banks so that the Islamic account holders may have “interest free” banking across the nation which will be in compliance with the Sharia.
It seems that both the RBI and the Centre were exploring their options before introducing this “Sharia Rule” into the banking systems , as Islamic Banking ensures financial inclusions of even those sectors of the society that remained excluded from the banks on the grounds of religion.
RBI has told the Finance Minister in a letter that , “In our opinion based on the complexities in the Islamic Finance and with other regulatory challenges involved , and also with Indian banks having nil experience in this field , we are introducing ‘Islamic Banking’ in India in a very gradual and phased manner.
We have a few sample products which are quite similar to the conventional banking products and can be considered for introduction through the ‘Islamic Window’ and this can be done only after some necessary notifications by the government.
We have explored all the options before introducing the full fledged Islamic Banking in India , with keeping the profit loss share in priority , products can be considered at the later stage only on the basis of the experience gained in the stipulated course time.”
A File Photo of the RBI , where Central Bank has sent its reports on Sharia Banking.
It also included “Not only according to the Islamic Sharia , it is our understanding that the “interest free banking” is the need of the hour to involve those excluded sections of the society who have been staying far away from it (banks) because on their religion.”
It has explained how the Islamic Window needs to work and how it will be different and separate from others till now , “According to the Sharia , it requires a proper processing of the certified products , whether it is based on asset or liability side , or the funds received under the interest free banking category , we cannot mingle other funds with it and there fore with this mechanism , we have to introduce a conduction of a separate window for it , called ‘Islamic Window’.”
The banks proposal is not only based on the Sharia but also on detailed scrutiny of legal , technical and several regulatory issues of the Central banks and Islamic Banking based on the the Inter Departmental Group (IDG).”
The work area under this ‘Islamic Window’ will include operations according to the Sharia Boards and Committees , the feasibility to extend the deposit insurance and identifying the risk and suggesting same to reduce it in the long run for certification of these products.
The Central Bank Official said that , “the paper work is being done , have sent the detailed report to the RBI , they are checking out the suitability and criteria for the Islamic products and what would be determined under the Sharia is also being examined.”
Though the Sharia banking was opposed by some Political as well Non Political Groups when it was on the talking terms between the Central Bank and the RBI. But now it seems that everything is going as per the plan , the Central Bank is just waiting for the green signal from the RBI after examining the Bank’s detailed report on Sharia Banking.
With Raghuram G Rajan , giving an opinion for “interest free banking “ , it looks like Urjit Patel will take this legacy forward by giving a clearance to the Central Bank on this “Islamic Window” proposal.