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The Reserve Bank today said Islamic banking is not consistent with current banking laws in India.
"We got to see that Islamic Banking which does not allow charging interest or taking of interest is inconsistent with our existing laws... All that I am saying is Islamic banking is not consistent with current banking laws," RBI Governor D Subbarao said after the board meeting here.
Charging of interest is necessary to conduct banking operation in India because banks have to borrow on which it has to pay interest rate, he said, adding banks have to deposit excess cash with the Reserve Bank on which they get interest.
"So our conclusion was that its the government which have to determine whether they want to permit Islamic Banking and if so they have to enact a law that is consistent with Islamic Banking," he added.
"We only allow bank to take a credit risk under law," he said.
He also said that if an institution or bank is under Islamic banking, it will have to come under perview of Shariah regulation.
"It is not clear that there can be two regulatory agencies over the same institutions. RBI as the banking regulator and Shariah court as regulator for Islamic banking," he added.
