Islamic Window to be considered in conventional banks
Posted on:21 Nov 2016 17:55:15
21 November 2016 Current Affairs GK: The Reserve Bank of India (RBI) in a letter to the finance ministry has put forward a proposal to open an ‘Islamic window’ in conventional banks. The move is a stepping stone to its consideration of introducing Islamic banking in the country.
The RBI and the Union Government have been exploring the possibility of introducing the Sharia-based foundation since quite long in order to include even those sections of the society that remain outside the banking circuit due to religious reasons.
The information was revealed when a copy of the letter was sent to Press Trust of India, in response to an RTI filed by it.
Response of RBI to the RTI query
Islamic banking may be introduced in the country in a gradual manner, considering the inexperience of Indian banks in the sphere and complexities of Islamic finance. At first, only products similar to those of conventional banking will be considered for introduction through an Islamic window at the conventional banks.
The full-fledged introduction of Islamic banking will be considered at a later stage, based on the experience gained during the time.
Islamic Banking :
It is a financial institution that is based on the principles of the Islamic law (Sharia). It is also known as Sharia compliant finance.
All its dealings, transactions, investment focus and business approach are derived from the Sharia law.
Its governing principles are as follows:
Absence of interest–based transactions
Introduction of Islamic tax, zakat
Avoidance of economic activities involving oppression and speculation
Discouragement of production of goods and service that go against the Islamic value
In order to introduce Islamic banking, RBI still has to put a lot of things into place. For instance:
Operationalisation of Sharia boards and committees
Exploring feasibility of extending deposit insurance to Islamic banking deposits.
Identifying the financial risks in such a framework
Formulating appropriate criteria for Islamic products.
The plan, however, of introducing the Sharia-based banking structure has found stiff opposition from certain political and non-political groups.
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