Reserve Bank of India urges Banks to cut ties with Crypto Businesses and Traders

The Reserve Bank of India, the chief financial regulatory body in the country, is informally conferring with banks and urging them to restrict their dealings with cryptocurrency-oriented businesses and institutions. Despite a Supreme Court ruling in March 2020 that allowed banks to extend their facilities to cryptocurrency exchanges and more, the RBI is adamant in its stance that the crypto market is too unregulated for the welfare of investors.

This guidance by the RBI comes at a time when the Indian Parliament is in the process of drafting a cryptocurrency regulation bill that would seek to make all dealings in cryptocurrency and digital assets illegal. Although the Government has maintained a neutral stance towards blockchain technology so far, as indicated in a media event with Finance Minister Nirmala Sitharam earlier this month, things look uncertain for Indian investors in the future.

A Reuters report dated Thursday, May 13, cited three unnamed sources for their information regarding this move by RBI. According to a senior bank executive, the RBI is questioning top bank officials why their institutions are dealing in such a speculative business. The executive further explained that the RBI feels uncomfortable because a lot of Indian money goes into overseas exchanges due to this trade, which they think could give rise to money laundering operations.

One of the frontrunners in blanket banning crypto from their systems is ICICI bank, which has already instructed all their payment gateway handlers to stop all crypto-related payment transactions, the Reuters’ sources said. Other notable banks following the same path are Axis Bank, Citibank, and Kotak Mahindra Bank who have begun limiting their exposure to cryptocurrencies.

These arbitrary crackdowns come at an unfortunate time for the budding blockchain industry in India. Several industry experts have criticized the Indian government’s attitude towards a technology that they do not fully understand. Nischal Shetty, CEO of WazirX, expressed his feelings about the bill in a series of tweets in January, saying that India will lose out on a lot of value due to hurried decisions by lawmakers.

Even through all uncertainties, the number of new Indian investors in the crypto trade is increasing every day. As the market witnesses a bull run, exchanges and other crypto services are scrambling to find partner banks. However, Reuters’ sources say that even if the discussions with RBI have been informal, no one wants to go against the central regulator. Additionally, banks and the RBI have given no comment to media sources regarding their decisions, so the internal workings of these financial bodies remain questionable.

At the moment, the total amount of money invested in the crypto market by Indian investors is over Rs. 10000 crores or $1.36 billion. India also houses several promising cryptocurrency start-ups such as Matic and WazirX, whose tokens have been trading favourably in exchanges throughout Q1 2021.

References

1. India’s Central Bank RBI Urges Banks to Cut Ties With Crypto Businesses and Traders: Report https://news.bitcoin.com/indias-central-bank-rbi-urges-banks-cut-ties-crypto-businesses-traders/
2. Govt must find way to reimburse 7 million Indians holding over $1bn if Bitcoin is banned, says WazirX CEO https://www.indiatoday.in/technology/news/story/govt-must-find-way-to-reimburse-7-million-indians-with-assets-over-1bn-if-cryptocurrency-is-banned-says-wazirx-ceo-1770381-2021-02-18

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