Despite regulatory hurdles, it is very much possible for Indian banks to run Islamic Banking Windows in India. Such windows may be just opened by adding any public counter or specific desk to cater needs of customers seeking Shari’ah Complaint banking. Under present banking regulations, following may be found ready to cater as Shari’ah Compliant products and services at Islamic Banking windows:
A. Deposit Side Products & Services
Equity Deposits (conditions prescribed in contract for bank as trustee of any company);
Mutual Fund Deposits (with floating and fixed maturity);
Safe Deposit Locker Services;
Online Trading Services;
Resident Foreign Currency Account (for NRIs returning home);
Foreign Currency Non Resident Deposits (for NRIs);
Internet Banking services for receiving, disbursing and transferring funds;
Consultancy Services (on Commission basis) to customers seeking Shari’ah Complaint Investments in Mutual Funds; and
Consultancy Services (on Commission basis) to customers seeking Shari’ah Complaint Investments in Equities / preferred Shares;
B. Lending and Investment Side Products & Services
Equity Financing (as an Executor if bank acts as a trustee);
Lease Finance business;
Hire purchase business;
Discounting of bills and Vouchers (on Commission basis);
E Tax services;
Letter of Credits;
Issuance of Bank drafts;
Issuing bank guarantee;
Mutual Fund Business;
Disbursement of corporate benefits services;
Retail Sale of Gold Coins;
Foreign Inward Remittance Services;
Gift Cheques Services;
Gift Card Services;
Pay Roll Card Services;
Foreign Travel Card Services;
Initial Public Offer Services;
ATM Services; and
It is also possible for banks to negotiate with infrastructure project companies and invest the amount as part of the equity in which case the investment will be Shari’ah compliant. Bank can project itself that it would help investors in making long term investment in a Shari’ah compliant manner in infrastructure projects. Some Indian banks, like Kotak Mahindra, have already been able to attract fund for long term investment.
Though today assuming that BR Act and the regulation framed thereunder, do not allow Islamic banking activity, no institution has ever tried to verify the truth or otherwise of the assumption. Considering above activities, it is worthwhile taking a step forward and test the market. With more than 150 million Muslims in India, large investment fund available in the Middle East and sustained investment opportunity provided by Indian economic environment, it is an exercise worth taking. Bank having Islamic Banking windows in India and abroad will have edge over others to draw investment funds for India by assuring the investors that investment will be suitably placed in India through proper Shari’ah complaint linkages to the end level in India as well.
The State Bank of India (SBI) with its widest network and largest asset base may take lead in attracting customers looking for Shari’ah-based banking services. Even if other banks take due leads, the rich experiences of SBI in dealing with para-banking activities will help optimising the opportunity faster than other banks. For Islamic banking at international level, Indian banks may have stiff competitions from foreign banks, but in national market there is no competition as such because at present no bank is offering such services. The bank which makes first announcement may take the lead in accruing the untapped market of Islamic Finance in India and others would have to follow that bank.
SBI is already having a subsidiary called SBICAP Trustee Company Ltd. (STCL) to work as a trustee for companies. It empowers SBI to raise deposits and deploy funds in prescribed trade / industry on specified conditions in accordance to customer’s need. So, it may not be difficult for SBI to cater to the customer’s need looking for Shari’ah Complaint financial products and services. Banks may also function as executors of trusts. In Mumbai some banks are either trustees or executors of Parsi or Anglo Indian trusts.
It would be easy for the first bank to accrue the untapped market by making Islamic Cooperative Credit Societies and NBFCs as their Business Correspondents to promote such products in Indian market. Once a bank enrols such Indian Islamic Financial institutions of India (IIFIs) as their Business Correspondents, it would be difficult for other banks to find customers for their Shari’ah Compliant products. Traditionally the customers seeking Shari’ah Compliant financial products and services have been served by these IIFIs only and it would not be easy for new banks to get new customers for Islamic banking windows unless it has any IIFI or potential Muslim NGOs as its registered Banking Correspondent.
To start Islamic banking windows in India a bank has to ensure that its activities comply with the Shari’ah principles. They may get in touch with well known Shari’ah scholars say from the school of Deoband or Nadwa in U.P, or may utilise the services of Shari’ah Advisory Board, the members of which may take care of verifying the product from Shari’ah angle before it is introduced. The board may also help in finalising the products, identifying the potential market and channels to promote this business. Banks just need to make an announcement of going for Islamic Banking windows in India, the due resources will follow on.
Hope we will be soon observing some changes in nature and extent of Islamic financial business in India. Expectedly after launch of Islamic banking windows in India by any bank, there would be competition among other banks declaring their specific products as more Shari’ah complaint. The one who better care to handle their customers will be having better market share of Islamic banking windows in India. Besides SBI, the other runners in this course are Standard Chartered Bank, HSBC, and Development Credit Bank, etc. Standard Chartered Bank and HSBC have long experience of running Islamic windows in a large number of countries. Bangladesh is one of them. So far as India is concerned, we hope that some more banks may become interested.