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When it comes to illustrating the uncertain status of cryptocurrencies in India, it would be hard to beat the three-way regulatory feud that has taken place in recent months between the country’s central bank, its Supreme Court and some of its largest lenders.
In the absence of regulations and rumors of an impending cryptocurrency ban, the country’s largest banks have attempted to distance themselves from the crypto community, apparently encouraged by the Reserve Bank of India.
In May, HDFC Bank sent a number of its customers an email warning them against virtual currency transactions. The email cited an RBI circular published on April 6, 2018, asking all companies it regulates to cease all involvement in cryptocurrencies.
The State Bank of India’s cards and payment services have sent similar emails to its customers, not only asking them for clarification on cryptocurrency transactions, but also advising them not to engage in them. The emails warned customers that failure to comply with its de facto ban on crypto-related activities could result in account suspensions or closings.
The emails from the banks sparked an uproar among customers, with many taking to social media to express their displeasure.
Also last month, several major banks, including ICICI Bank, the country’s largest private lender, stopped providing services to crypto exchanges. Banks have reportedly instructed payment gateways to block internet banking and other services to merchants dealing in cryptocurrencies.
Since then, several cryptocurrency exchanges have reported difficulties with bank deposits and wire transfers. Following the closure of crypto exchanges’ bank accounts, several exchanges have struggled to offer their users payment alternatives.
WazirX, for example, one of the largest crypto exchanges in India, currently offers deposits and withdrawals only through the MobiKwik payment wallet, as it is no longer able to offer the online banking options and unified payment interface that it had previously made available.
Courting controversy
All of this took place despite the fact that the RBIs circular was overturned by the Supreme Court early last year. The court argued in its March 2020 ruling that the RBI failed to provide sufficient evidence and detailed cases of losses resulting from crypto transactions, which may merit such drastic action as its de facto ban on bank involvement. in cryptos.
On May 31, 14 months after the court ruling, the RBI issued a circular clarifying that its 2018 circular, cited by the banks in their emails, was legally invalid as it had been overturned by the court. The circular could not be quoted or quoted, he said.
Crypto exchanges see RBI’s latest circular as a step in the right direction. Nischal Shetty, CEO of the exchange backed by Binance WazirX, told Forkast.News: This is a great move by the RBI. This brings a lot of clarity for the banks. They’ve been on the fence [about] whether or not they should serve the crypto industry. Now there is clarity that will help banks provide services to [the] crypto industry.
Vikram Subburaj, CEO of crypto exchange Giottus Technologies, said: This is a huge victory for the thriving crypto ecosystem in India. Many investors and startups like ours have been inconvenienced by banks citing the late RBI circular.
This RBI update could have come immediately after the Supreme Court verdict in 2020, but we are nonetheless grateful for this clarification now. However, we believe the RBI certainly could have done more now to encourage the relationship between the banks and the crypto ecosystem instead of just clarifying.
Anirudh Rastogi, one of the founders of Ikigai Law who represented cryptocurrency exchanges to the Supreme Court last year, however, said the RBI’s clarification was too small, too late, Forkast said. News: This circular does not deny banks the power to deny services to businesses and cryptocurrency users.
Rhetoric and reality
Although the country’s central bank has made it clear, albeit with palpable reluctance, that it does not view cryptocurrencies as illegal, it has taken no action against banks that have sent out emails. ‘Warning. Nor has it tried to prevent them from denying crypto-related services to users in the future. This, despite the fact that it has the power to prevent banks and other regulated companies from denying services to crypto users.
The RBI has the power, and I would say a moral obligation, to intervene, Rastogi said.
However, Shetty hopes that RBI’s statement on his position will encourage more banks to consider providing banking services to crypto companies.
We were optimistic that the latest RBI circular will help the crypto industry, he said. We hope this circular encourages banks to update their compliance teams and provide banking access to Indian crypto exchanges.
Still, it may be a while before crypto companies see a lot of change.
Subburaj said: From a business perspective, supporting crypto entities will only prove to be a win-win situation for banks and crypto entities. But with [the] As RBI’s history has not shown support for this industry, it could take some time for the relationship to smooth out between banks and crypto entities.
He added: In fact, by making the bank responsible for doing due diligence [know-your-customer] and [anti-money-laundering measures], the RBI kind of added a caveat in their clarification.
In other words, the RBI reports that banks’ involvement with cryptocurrency users and businesses is done at their own risk.
Subburaj said some banks remain wary of the crypto industry despite clarification from the RBI, but others are in discussions with their compliance teams on whether or not to expand their support. Trade.
HDFC Bank, citing the RBI circular, withdrew its previous notice on May 31. Although its retraction indicates that customers don’t have to worry about cryptocurrency transactions, it remains unclear whether the bank will restart providing services to cryptocurrency users. SBI has not yet withdrawn its opinion.
Forkast.News has contacted the RBI and HDFC Bank for comment, but neither had responded at the time of this article’s publication.
Parliamentary push
Along with the RBI’s exhortations, the timing of the bank crypto crackdown may have been influenced by a cryptocurrency bill that has yet to be presented to parliament. The bill proposes a drastic ban on all cryptocurrencies and related transactions and businesses, including traders, miners, and exchanges.
Banks around the world are cautious in serving cryptocurrency users as crypto transactions introduce increased money laundering [and] terrorist financing risk, said Rastogi. However, it seems more than a mere coincidence that several banks have started cracking down on the crypto industry at once.
Still, the likelihood of a complete cryptocurrency ban has declined since the bill was announced.
Rastogi said: A complete ban seems less likely now. There have been positive murmurs from the government on this issue.
Last month, the Economic Times reported that the government was looking to set up an expert panel to study the possibility of regulating cryptocurrencies, a development that Shetty welcomes.
The Indian government could be on the path to positive crypto regulation, he said. Around the world, the adoption of crypto is accelerating. Governments and tech giants around the world are embracing crypto and I have no doubts India will not be left behind.
Indian crypto investors are also bullish.
Entrepreneur and investor Kaparthi Jonnalagadda, who has been investing in Bitcoin since 2014, said: I don’t think there will be a ban on crypto in India because it’s easier to regulate cryptocurrency than it is. ban completely. It takes a lot of effort and time to block all crypto trading channels accessible to an investor or trader. Additionally, regulating crypto can be beneficial for the Indian economy in general as it brings more investment to crypto startups.
Shetty told Forkast.News in an interview that contrary to popular perception, the government has shown its openness to the regulation of crypto.
When you talk to some of the top leaders, you realize they want to understand, he said. They want to participate. They probably think that nothing bad should happen, especially because we are dealing with finances and people’s money.
Industry initiative
Earlier this month, a number of cryptocurrency exchanges partnered with the Internet and Mobile Association of Indias Blockchain and Crypto Asset Council to form a self-regulatory body and code of conduct for trading in crypto. Subburaj, who like Shetty is on the board, said it could help crypto exchanges demonstrate the steps they are taking to protect their customers.
Since it is now up to banks to decide whether they are willing to support the crypto industry, it becomes all the more important to educate bankers on the processes that crypto exchanges already go through to secure a platform. safe and secure form of trading, Subburaj said.
However, gaining the trust of the wider financial community can prove difficult, as suggested by the fact that WazirX and its directors, Shetty and Sameer Mhatre, received a show cause notice last Friday from the Indian anti-trust agency. foreign exchange and money laundering for a so-called forex. violations involving 27.9 billion rupees (US $ 382 million) related to cryptocurrency transactions.
And then there remains the broader question of what form crypto legislation might take, which got further complicated last week when reports revealed India was considering regulating crypto as a class of. ‘assets rather than as currency. If New Delhi takes this approach, a number of issues will arise, including taxation. Yet it may also offer crypto firms a respite from the hostility they have suffered from the RBI, which would likely lose its mandate to regulate the sector in favor of the nation’s securities watchdog. .
Despite the pervasive and lingering uncertainty surrounding the status of cryptocurrencies in the world’s second most populous country, it’s a safe bet that the battle of the wills we’ve witnessed in recent months will continue for some time to come. .
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