NEW DELHI: India may soon get its first foreign Islamic bank with the Reserve Bank of India (RBI) seeking government approval to allow Turkey’s Bank Asya to offer Shariah-compliant lending in the country. Shariah, or the Islamic law, bans interest on financing. Bank Asya is keen to start its Indian operations through a representative office in Mumbai. “So far the bank has only sought permission to open a representative office,” a finance ministry official said. “We are considering their application .”
Bank Asya had in 2009 received clearance from Turkey’s banking regulator to open a representative office in India. Its proposal has been pending with RBI for over a year. “After the global economic crisis, RBI has been stringent with allowing foreign banks in the country,” the finance ministry official said. “As a part of its liberalised policy for foreign banks, it has now granted permission to Bank Asya.” Global financial centers, such as Singapore , Hong Kong, Geneva, Zurich and London, have made changes in their regulations to accommodate Islamic finance industry that is now worth about $1 trillion.
RBI has requested the government to consider the Turkish bank’s application within 45 days. Launched in 1996, Bank Asya aims to develop interest-free banking products, according to its charter. It has 179 branches in Turkey. The current statutory and regulatory framework in India does not allow banks to undertake Islamic banking activities. But the Committee on Financial Sector Reforms, constituted by the Planning Commission, had in a report in 2008 recommended delivery of interest-free finance on a larger scale, including through the banking system. Last year during a visit to Indonesia, the country with the world’s largest Muslim population, Prime Minister Manmohan Singh had said that he would ask RBI to look into the demand for establishing Islamic banking in India.
source : the economic times