The government was to announce Islamic banking norms in parliament on Tuesday in a bid to promote financial inclusion and attract investments.
It remains to be seen whether the Bharatiya Janata Party-led government would make the announcement, which is certain to face opposition from the hardcore section of Sangh Parivar.
Islamic banking is based on an interest-free principle in line with Islam's ban on usury. The Reserve Bank of India (RBI) has proposed opening of "Islamic window" in conventional banks for gradual introduction of Sharia-compliant banking, a sector that has gained prominence in some of the world's top financial hubs but remains an undeveloped concept despite Muslims being the country's second-largest religious group.
India may be able to attract top Islamic financial institutions and funds if it introduces a sound regulatory framework for the sector.
The products and services in the Islamic finance sector focus on profit-sharing rather than charging interest to make money. Investments must conform to certain ethical standards that prohibit non-halal trades such as gambling, weapons, pork products and alcohol.