Reserve Bank Governor D Subbarao on Thursday ruled out introduction of Islamic banking in the country but said other methods for channelising funds based on the principles of Islamic law can be looked at.
“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 percent, releasing Rs 17,500 crore of primary liquidity into the system.
Referring to the issue of financial inclusion, Subbarao said, financial literacy was important and the central bank was advocating educating children on the subject in schools and colleges.
“One of the most important thing we are doing is to request state governments to introduce curriculum on finance in schools and colleges. We started this as a pilot project four years ago in Karnataka. Since then we have advocated this in several states, including Kerala”, the RBI chief said.
The financial inclusion curriculum prepared by the RBI, he added, would be translated in local languages so that it could be introduced in schools and colleges.
People need to understand financial inclusion so that they are able to demand financial services from banks, he said while declaring Ernakulam has become the first meaningful financial inclusion district in the country.
With a population of 32 lakhs, Ernakulam has 37 lakh bank accounts.
Financial literacy, RBI Governor said would also help in directly transferring subsidies and state-sponsored scholarships through bank accounts and prevent leakages.
The main challenge before the RBI, he said, was to tell banks that financial inclusion is a viable business model and people should be encouraged to actively use bank accounts opened as part of the drive.
Referring to Chandy’s plea that money deposited in Kerala should be deployed in the state, the RBI chief said he would request the state to promote schemes in various sectors like tourism and manufacturing. “We will do whatever we can from RBI”, he added.
Chandy appealed to banks not merely to consider Kerala as a ‘fertile’ place to raise deposits, but contemplate funding projects in sectors like manufacturing and tourism in the state.
Banks, the Chief Minister said, should also endeavour to provide education loans to the students as it was the right of every child to pursue education.
UIDAI Chairman Nandan Nilekani, who was also present at the financial inclusion programme, said Aadhaar would encourage and catalyse financial inclusion.
“Aadhaar can be used as KYC (Know Your Customer)– proof of identity. If the migrant workers have Aadhaar cards, they can open bank accounts in any state”, he added.
In the second phase, with an electronic KYC, he said, it would be possible to open instant bank accounts.
Moreover, Nilekani said, the Aadhaar numbers could be used for direct transfer of subsidies, thereby reducing leakages in delivery mechanism.
In the long run, he said, the government would be able to use the Aadhaar platform for direct transfer of subsidies, including LPG and kerosene.
Speaking at the event, Kerala Finance Minister K M Mani urged banks to be “more generous” while disbursing education loans besides providing fund to the micro-finance sector.
Mani also said that state government was seriously thinking of including financial inclusion as curriculum in schools.