India says no to Islamic banking

The Union Government today informed the Kerala High Court that it was not legally feasible for banks in India or its branches abroad to undertake Islamic banking activities.

In a counter affidavit, M M Dawla, Under Secretary in the ministry of Finance informed the court that this had been the stand of the Union Government even while giving replies to questions in Parliament as well as in response to various VIP correspondence on the subject.

The counter was filed on a petition by R V Babu of Hindu Aikya Vedi against an Islamic banks proposal .

Earlier, Janata Party leader, Subramaniam Swamy, had also filed a PIL against the establishment of the financial institution to be run on the model of Islamic banks with the support of Kerala State Industrial Development Corporation (KSIDC).

The stand of the government is that Non Banking Financial Companies (NBFC) should should basically commence or carry on the activities in accordance with provisions of RBI and directions issued there under.

Government said that even though the relief sought for by the petitioner is not directly connected with the Union of India, the affidavit is filed for the purpose of clarifying the stand of the central government on the issues involved.

The High court had in April this year directed the state government and its institutions not to participate financially or otherwise in the financial company modelled on the lines of Islamic bank.

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