Islamic banking set to enter India
The Kerala high court dismissed a petition challenging the state government’s plans to co-promote an Islamic finance institution. The move could pave the way for introduction of Islamic finance products by existing lenders and also reduce regulatory objections for an Islamic Bank. On Thursday, a division bench comprising Chief Justice J Chalameswar and Justice P R Ramachandra Menon dismissed petitions objecting to the creation of an Islamic financial institution and said the proposed body was to work in accordance with financial laws of the country even while it complied with Shariah rules. The state-owned Kerala State Industrial Development Corporation (KSIDC) started working on this proposal after finance minister Thomas Isaac floated the idea in 2009. The proposal was to start a financial institution working on the principles of Shariah. It was registered as Al-Baraka Financial Services. The bank was to have a body of Islamic scholars to advise whether the principles of Shariah were being complied with. KSIDC was to hold 11 per cent equity in the entity. Al-Baraka has 14 promoters and prominent Gulf-based entrepreneurs from the state P Mohammed Ali and C K Menon were to hold the posts of chairman and vice-chairman respectively. The Reserve Bank of India stayed the implementation of the proposal in 2010 after two petitions, one of them by Janata Party president Subramanian Swamy, were filed in the high court, arguing that participation of the state in such an institution went against the secular principles of the country. A division bench comprising Chief Justice J Chalameswar and Justice P R Ramachandra Menon on Thursday rejected the petitions. The judges said the proposed institution was to work in accordance with the financial laws of the country even while complying with the Shariah. The judges said even though the new institution was based on the principles of one religion, its motive was not to propagate the religion and the state’s participation in it was purely based on commercial interests. The judges, however,said it was for the RBI to examine whether the constitution of the new entity went against any of the banking rules stipulated by it.