I live in India. Here the government is non-Muslim. I wanted to know if bank interest is Halāl in a non-Muslim country as I heard that there is a Hadīth which says so?
Taking Interest is prohibited whether in a Muslim country or in a non-Muslim country because of the fact that it is inherently an unethical contract. Things which are unethical are prohibited whether they be with Muslims or non-Muslims. In other words, just as one should be honest not only with Muslims but also with non-Muslims, similarly one should also not be selective on the basis of religion in taking interest.
The Hadīth you have referred to is not an authentic one1 and is also not found in the six major books of Hadīth . Its content also contradicts the Qur’ān. As a result, I am afraid it cannot be accepted.
1. The Hadīth is Mursal and reads thus:
There is no interest between a Muslim and his enemy with whom he is at war. (Bahqī)