New Delhi: The response given by the Finance Ministry on an RBI report about the introduction of Sharia banking in India cannot be disclosed, the central bank has said.


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The Reserve Bank of India (RBI) was asked to give the copy of the letter sent to it by the ministry on the recommendation of its Inter Departmental Group (IDG) regarding Islamic banking.


The central bank had sought response from the Department of Financial Services (DFS) under the finance minister whether their letter can be disclosed under the Right to Information (RTI) Act.


"In this regard we have been advised by the DFS, Government of India that the letter is exempt under Section 8 (1) (c)," the RBI said in response to an RTI application filed by PTI.


The Section bars disclosure of information "which would cause a breach of privilege of Parliament or the state legislature".


Islamic or Sharia banking is a finance system based on the principles of not charging interest, which is prohibited under Islam.


The RBI had earlier proposed opening of "Islamic window" in conventional banks for gradual introduction of Sharia- compliant or interest-free banking in the country.


"In our considered opinion, given the complexities of Islamic finance and various regulatory and supervisory challenges involved in the matter and also due to the fact that Indian banks have no experience in this field, Islamic banking may be introduced in India in a gradual manner.


"Initially, a few simple products which are similar to conventional banking products may be considered for introduction through Islamic window of the conventional banks after necessary notification by the government," the RBI had told the Finance Ministry in a letter, copy of which was received in response to the RTI query.


The central bank's proposal is based on examination of legal, technical and regulatory issues regarding feasibility of introducing Islamic banking in India on the basis of recommendation of the IDG.


The RBI had in February last year sent a copy of the IDG to the Finance Ministry.


In late 2008, a committee on Financial Sector Reforms, headed by former RBI Governor Raghuram Rajan, had opined the need for a closer look at the issue of interest-free banking in the country.


"Certain faiths prohibit the use of financial instruments that pay interest. 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," the committee had said.


"This non-availability also denies the country access to substantial sources of savings from other countries in the region," it added.