Illegality of Islamic Banking in India: Dr. Swamy’s letter to RBI Governor

published on February 22, 2011

Mr. D. Subbarao,                                                                     February 21, 2011.
Governor, Reserve Bank of India,
Central Office Building,
Shaheed Bhagat Singh Marg,
Mumbai-400 001.
 
Dear Mr. Governor,
 
          I draw your attention to a news item in today’s New Delhi Media.It states that efforts are on to set up Islamic financial institutions including banks that will be Sharia compliant.I wish to draw your attention to the fact that the Reserve Bank of India and the Ministry of Finance have bothfiled sworn affidavits in my Writ Petition that I hadfiled in the Kerala High Court and whichwas heard. A judgment was delivered by the Hon’ble Chief Justice’s First Bench on February 2nd.

          Although the Hon’ble Bench has dismissed my Writ Petition on a technicality, it had conceded my main point that any financial institutions has to comply with the laws as laid down in the Reserve Bank of India Act and the Banking Regulations Act.Furthermore, the Reserve Bank and the Ministry of Finance had in its sworn affidavits explicitly stated that under the present laws, no Islamic financial institution following Sharia principles are legal and in fact the Reserve Bank had to issue cancellation notices to severalIslamic financial institutions which had functioned according to Sharia principles, but its Memorandum earlier submitted to RBIhad misled the Bank into thinking otherwise. Hence I draw your attention to the said judgment of the Kerala High Court and request you to have your staff fully clued, and not tocrumble underthe pressure of the propaganda of the religious forces, which isthat the dismissal of my Writ Petition automatically means that such institutions can be set up in the existing legal framework.Kindly ensure that in this matter the Reserve Bank performs its strict oversight of any attempt to by-pass the law.                

Yours sincerely,

Subramanian Swamy

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