New Delhi: In a major move, the Reserve Bank of India (RBI) has decided not to pursue a proposal for introduction of Islamic banking in the country.


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Replying to an RTI query, the central bank said the decision was taken after considering "the wider and equal opportunities" available to all citizens to access banking and financial services.


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


The issue of introduction of Islamic banking in India was examined by the RBI and the government of India, it said.


"Taking into account, the wider and equal opportunities available to all citizens to access banking and financial services, it has been decided not to pursue the proposal further," the central bank said in its reply to the RTI application filed by this PTI correspondent.


The RBI was asked to provide details of steps being taken for the introduction of Islamic or 'interest-free' banking in India.


Prime Minister Narendra Modi had on August 28, 2014 launched Jan Dhan Yojana, a national mission to bring about comprehensive financial inclusion of all the households in the country.


In late 2008, a committee on Financial Sector Reforms, headed by former RBI governor Raghuram Rajan, had stressed on 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.


Later, on the instruction of the central government, an inter-departmental group (IDG) set up in the RBI examined the legal, technical and regulatory issues for introducing interest free banking in India and has submitted its report to the government.


The RBI had in February last year sent a copy of the IDG report to the finance ministry and recommended an "Islamic window" in conventional banks for gradual introduction of Sharia-compliant banking.


"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," it had said in a letter to the ministry.


The letter further reads: "It is also our understanding that interest free banking for financial inclusion will require a proper process of the product being certified as Sharia complaint will be required both on the asset and liability side and the funds received under the interest free banking could not be mingled with other funds and therefore, this banking will have to be conducted under a separate window."