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Thursday, 22 November 2012

India: RBI Governor urges separate laws for Islamic banking

Reserve Bank Governor, D Subbrao said that separate legislation should be enacted in order to commence Islamic Banking in India.  Talking to media persons here today he said under the present banking laws, Islamic banking could not be permitted in India.

"There should be separate legislation for the purpose. The Kerala government had proposed to  permit Islamic banking as the inward remittance is  the highest here. Reserve Bank is not against the idea, but  we  can work only under the present legal frame work of the country," he added. 

He also said that RBI had studied Kerala’s  proposal in detail and there are some legal problems implied in it.  This can be got around through separate channel, so it is not possible under present banking frame work  which insists interest for both deposits and lending. Islamic banking is a totally different system which does not permit interest regime.  

He also said that RBI would take into account all information about the economic situation of the country and   will take decision on change in the interest rates. We will announce our decisions on the next review meeting scheduled on December 18. 

RBI planned to include financial literacy in the curriculum of primary schools and prepared study materials for teaching the subject. This had been translated into the regional languages and a pilot project had been started in Karnataka. State governments should take the initiative to include this in the school syllabus. 

Earlier, addressing the function to dedicate Ernakulam district as the first 100 per cent  meaningful financial inclusion district of the country he said that merely having a bank account is not sufficient for financial inclusion. People must use the account actively,  should get credit and micro insurance and should get other financial assistances through the banks.  Through this,  leakages from  the government assistance should be curtailed to a great extend. Banks should not see this as an obligation, but rather consider it as a business model. He added that financial exclusion is more in the urban areas than in  rural areas. 

The RBI governor also said that banks had been directed not to insist for collateral securities in order to give educational loans  up to Rs 4 lakh.

(Business Standard / 22 Nov 2012)

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