"Islamic banking is not possible", he said, adding the central bank could look at other vehicles based on Islamic banking principles to channelise NRI funds.
Replying to a question on the issue, Subbarao said: "There are some legal problems. We have studied the issue. We appreciate the objectives behind the request. But there are some legal problems. It can be got around not through banking, but other vehicles".
He said that introduction of such banking was not possible in absence of a separate law for Islamic banking.
The RBI chief further said the state Chief Minister Oommen Chandy had told him that there were several NRIs in Kerala who wanted to contribute to the development of the state and that there should be a mechanism for channelising their funds.
To questions on inflation, Subbarao said: "I will talk about inflation later. I will only say that our next mid quarter monetary policy review is on December 18. Last policy review was on October 30".
In view of the high inflation, the Reserve Bank in its last policy review refrained from reducing interest rates, though it did cut the Cash Reserve Ratio (CRR) by 0.25 per cent, releasing Rs 17,500 crore of primary liquidity into the system.