“What needs to be seen is how Islamic banking would be allowed as it does not allow taking and charging interest on which our banking system operates,” Subbarao said while addressing a press conference here.
“We have got to see that Islamic banking is not consistent with our current banking laws,” he said.
The Reserve Bank of India governor said charging interest is necessary to conduct banking operation in the country. “We only allow banks to take a credit risk under the law,” he said.
“If an institution or bank is under Islamic banking, it will have to come under the purview of Shariah regulation. It is not clear whether there can be two regulatory agencies — RBI as the banking regulator and Shariah court as a regulator for the Islamic banking,” he added.
Subbarao said the government has to determine whether they want to permit Islamic banking and “if so they have to enact a law that is consistent with Islamic banking.”
He said the RBI has asked the banks in Jammu and Kashmir to increase the credit-deposit ratio to 40 per cent from the present 36.5 per cent by the end of the current financial year to make sufficient credit available to the people.
“Enough credit avenues are not available to the people in the state,” he said.
The RBI governor said the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI) is not applicable to the state due to Article 370.
“But chief minister has said it will be enacted shortly in the state either in the Assembly or through an ordinance,” he added.
The SARFAESI Act empowers banks to dispose of assets of defaulting borrowers to recover loans from them without having to go through the time-consuming process of invoking such securities through a court of law.
Subbarao said RBI has completed investigations against the banks after a web portal Cobrapost exposed violation of prudential banking norms. Action will taken against them if they are found guilty, he said.
“We have done investigations and prepared an internal report. To take the investigations to its logical conclusion, firstly action will be taken against individual institutions which are involved in practices that are inconsistent with the banking regulation and prudential banking,” he said.
Cobrapost in its expose alleged that money laundering and other wrong doings were being carried out by several public sector financial institutions, including the country’s largest bank State Bank of India and Life Insurance Corporation.
(Deccan Herald / 12 May 2013)
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com