'Indian system not feasible for interest-free Islamic banking'
New Delhi: The government on Tuesday said it is not legally feasible for domestic banks to carry out interest- free Islamic banking activities.
"RBI has informed that in the current statutory and regulatory framework, it is not legally feasible for banks in India to undertake Islamic banking activities in India or for branches of Indian banks abroad to undertake Islamic banking outside India," Minister of State for Finance Namo Narain Meena told the Rajya Sabha in a written reply.
He said the Reserve Bank of India has received references from the Indian Centre for Islamic Finance for introducing interest-free banking in the country in order to ensure inclusive growth with innovation in accordance with recommendations of the Raghuram Rajan Committee.
Islamic Banking is based on the principles of Islamic law and guided by Islamic economics.
Two basic principles behind Islamic banking are the sharing of profit and loss and, significantly, the prohibition of the collection and payment of interest. Collecting interest is not permitted under Islamic law.