State Bank of India, India’s largest lending bank and Life Insurance Corporation (LIC), the country’s largest insurance company are planning to launch Islamic products, despite a study by RBI concluding that Islamic banking is not feasible in the current regulatory environment. Amendment to the Banking Regulation Act of India, 1949 is the prerequisite to allow Islamic banking system to operate in India. Such changes however cannot be made without strong political will.
According to RBI, except offering basic current account facility, almost no other banking product in India can be modified to meet the conditions of Islamic banking. Shariah law prohibits making money out of money, therefore shunning the idea of paying interests to depositors.
While SBI is still working on the feasibility of launching Shariah-compliant products and changes in system that will be required, LIC is looking forward to launch Takaful products catering to Saudi nations. Takaful is the insurance equivalent of Shariah-compliant Islamic Banking.
Some experts suggest that given the fact that 15% of India population comprises of Muslims, Islamic banking will open up a significant resource for funds during this period of credit crunch. Most importantly, it will attract large number of cash rich Middle Eastern economies that are looking for new investment avenues.
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