RBI urged to look into Malaysia's Islamic banking model

Prime Minister Manmohan Singh on Wednesday said the Reserve Bank should look into Islamic banking practices in Malaysia, amid pressure on the central bank to introduce such a system in India.

"There have been from time to time demands for experimenting (with) Islamic banking. I would certainly recommend to RBI, which is looking into the question, to look at what is happening in Malaysia in this regard", he said when asked whether India would like to learn something of Islamic banking from Malaysia.

Singh, who is on a visit here, earlier held wide-ranging talks on economic and strategic issues with his Malaysian counterpart Mohd Najib Tun Abdul Razak.

The pressure has been mounting on RBI to introduce Islamic banking, a kind of interest free banking system, in the country. The move could fetch billions of dollars in investments from countries in the middle-east.

Currently, close to $1 trillion is being managed by about 400-500 Islamic banks worldwide and by 2020, the figure is expected to touch $4 trillion.

According to projections by global consultant McKenzie, investment surplus in the West Asian region is expected to be around $9 trillion by 2020. Currently the investment surplus is around $1.5 trillion.

Recently, Muddassir Siddqui, Partner and Head of Islamic Finance, Middle East, SNR Denton and Company urged the Indian government to open interest free banking on pilot basis.

"We held close interactions with finance ministry and RBI officials. We hope the ice is breaking. There was no time frame for setting up Islamic banking. We are hopeful permission would be granted very soon," Siddqui had said.

The judiciary, however, is not favourably disposed towards Islamic banking institutions in India.

The Kerala 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.