Government had constituted a Committee on Finance Sector Reforms (CFSR) headed by Dr. Raghuram Rajan which has submitted its report to the Government. The CFSR had also, iner-alia, made recommendation on the issue of provision of interest free finance on a larger scale, including through the banking system.

 The Government advised the Reserve Bank of India (RBI) that before a decision is taken regarding introduction of ‘Islamic Banking/Alternative Banking’ in India, the legal/technical/regulatory issues in this regard need to be clarified by RBI. Accordingly, an Inter-Departmental Group on Alternative/Islamic Banking has been set up within RBI to examine the legal and technical issues in introducing Islamic Banking in India. The Group has submitted its report and the same is under the consideration of RBI.

 This was stated by Shri Jayant Sinha, Minister of State in Ministry of Finance in written reply to a question in the Lok Sabha today.

Islamic banking regulatory framework requires clarification of legal and technical issues before any systemic introduction. Introduction of Islamic/Alternative Banking is contingent on clarification of legal, technical and regulatory issues. After a finance reform recommendation, the Government asked the central bank to assess these matters; an internal inter departmental group examined the issues, has submitted its report, and the central bank is considering the findings before any decision on introduction.