RBI nod for the first sharia bank in Kerala
Kerala is all set to become the first state in India to start a Sharia-based non-banking finance company. The state government has finally got a nod from the Reserve Bank of India to set up a NBFC, which will be functioning as per the principles of Islamic banking. Kerala, which is a remittance-driven economy has been making request to the RBI to allow Islamic banking for many years now.
Kerala State Industrial Development Corporation is all set to float Cheraman Financial Services Limited, a concern of Al Baraka Financial Services, in this regard. Under the Islamic banking norms, the banks cannot charge interest from the borrowers nor can it pay interest to the depositors. As per the sharia laws, banks also cannot invest money in certain business areas like liquor, tobacco, gambling or speculation, which are strictly forbidden. Islamic banks are also prohibited from investing in bonds, treasury bills, and commercial papers, or lend to finance inventory or projects for interest.
It is estimated that over Rs 50,000 crore of interest money is lying unclaimed in Kerala banks, mostly on remittances on non resident Muslims who cannot claim interest from banks. Though the permission has been granted only for a non banking financial services and not a commercial bank, it will be a good choice for traditional Muslim investors who wish to go by the sharia banking norms.