Reserve Bank of India says Islamic banking ‘not feasible’

LIC has set up a team looking into Islamic products. However, a Reserve Bank of India study has recently concluded that Islamic banking may not be feasible in the current regulatory framework in the country.

LIC chairman TS Vijayan told the Economic Times that the corporation had put in place a team to look at Takaful, the insurance equivalent of Shariah-compliant Islamic banking. The state-run insurer’s representative office in Singapore is to serve as a base for catering to Malaysian and Indonesian market, according to a report in Economic Times.

“We have put a team to study Takaful products. We are looking at this product for our Saudi operations where Takaful is coming up,” said Mr Vijayan.  However, things at SBI are still in the preliminary stages. “We have been studying the feasibility of launching Islamic banking in terms of the products that can be offered and the systems that need to be put in place,” said SBI deputy general manager, overseas expansion and planning, Naresh Malhotra. He, along with other officials at the International Business Group, met several experts to study the legal and regulatory hindrances towards launching Shariah-compliant products.

SBI is only the latest entrant in the growing list of firms seeking to tap the investment habits of close to 142 million Muslims in the country. Over the the past few months, two mutual fund schemes have been launched which claim to operate on a Shariah-compliant basis. Two insurance companies are also jumping on the bandwagon by launching special pension fund schemes. The Kerala government recently announced plans to set up a Shariah-compliant NBFC, capitalised at Rs 1,000 crore ($215 million).