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RBI Circular on Cryptocurrency Clarifies No Ban in India: Will UPI, Online Payments Return?

File photo of a Bitcoin illustration. The RBI on Monday clarified that banks must stop using its 2018 directive to prevent crypto investments in India. (Image: AFP)

File photo of a Bitcoin illustration. The RBI on Monday clarified that banks must stop using its 2018 directive to prevent crypto investments in India. (Image: AFP)

The top Indian regulatory bank issued a statement that its 2018 circular advising against cryptocurrencies is no longer valid, but the road back to banks supporting crypto investments in India may not be as clear.

Yesterday, on May 31, the Reserve Bank of India issued a circular that offered some clarification towards the official state of cryptocurrencies in India. After widespread reports claimed that both private and public sector banks have been actively advising users against investing in cryptocurrencies, while withdrawing payment support for Indian crypto trading platforms, the RBI circular underlined that banks can no longer prevent users from making crypto investments by citing the 2018 circular. However, the circular may not be viewed as a direct endorsement of cryptocurrencies by the central bank, therefore still leaving the Indian crypto space wide open for an official regulatory framework, which cannot arrive soon enough.

What the RBI circular really says

In the circular, RBI’s chief general manager, Shrimohan Yadav states, “References to the (old) circular by banks/ regulated entities are not in order, as it was set aside by the Hon’ble Supreme Court on March 4, 2020. As such, the circular is no longer valid from the date of the Supreme Court judgement, and therefore cannot be cited or quoted from.” However, it is important to note that while the clarification is certainly of value, the RBI has left room open for banks to take their own call by not mandating that not complying with cryptocurrency trading platforms and wallets in India would go against the law.

In the RBI circular, Yadav has further added, “Banks (and NBFCs) may continue to carry out due customer diligence processes, in line with regulations governing standards for Know Your Customer, Anti-Money Laundering, Combating of Financing of Terrorism and obligations of regulated entities under Prevention of Money Laundering Act, 2002 – in addition to ensuring compliance with relevant provisions under Foreign Exchange Management Act for overseas remittances.”

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Industry stakeholders believe regulations will help end arbitrary bans and withdrawals of support from banks – stalling the Indian crypto market.

What this might mean for crypto in India

The circular comes at a time when cryptocurrencies have seen a clear spurt in usage. Platforms such as WazirX, which are among the most recognised names in the crypto space in India, have seen far greater growth than ever before – hence signalling the need for a robust set of regulatory laws in this sector. In a recent interview with News18, WazirX CEO Nischal Shetty highlighted this very aspect, stating that the biggest gain for cryptocurrencies after being subjected to regulation would be the end of arbitrary bans and withdrawals of support from banks – which would enable common people to invest in crypto.

“Our finance minister herself has called for a “calibrated approach” to cryptocurrencies in India, and given that we have over 1.5 crore crypto users in the country contributing over $2 billion to our economy, it is unlikely that cryptocurrencies will be banned in India,” Shetty told News18. However, while the RBI circular may add one clause to the battle for cryptocurrencies in India on its face value, the recent market trajectory has gone exactly the opposite way. Various reports have claimed that at least HDFC Bank, India’s largest private sector bank, as well as the State Bank of India, the biggest public sector bank in the country, have both been warning users against investing in cryptocurrencies.

ICICI Bank was one of the last major private sector banks to discontinue offering banking and payment services for cryptocurrency platform, and is also said to have cited the 2018 RBI circular as the basis for doing so. When contacted by News18, an ICICI Bank official neither confirmed and nor denied its reported stance on cryptocurrencies. News18’s requests for a comment on the new RBI circular remained unanswered by ICICI Bank at the time of publishing.

We respect the concern that the banks may have around AML policies, and discussions around the same will make investments safer.-Sumit Gupta, CoinDCX

Crypto market is naturally bullish

As expected, the Indian crypto market remained upbeat after the publication of the RBI circular yesterday. WazirX’s Shetty tweeted that the directive would bring “joy and confidence” to the sector. Sumit Gupta, co-founder and CEO of Indian cryptocurrency index CoinDCX, echoed Shetty’s words by “welcoming” RBI’s move, and stated that the circular may help end confusions around crypto investments in India to a large extent. Interestingly, while the RBI circular issued a cautionary note and stated that banks may act upon their discretion in line with Anti-Money Laundering (AML) policies, Gupta believes that this may have a positive effect on the crypto industry.

“We respect the concern that the banks may have around AML policies, and discussions around the same will make investments safer,” Gupta added. The circular, as a result, does not really mandate the return of online banking or UPI payments support from major banks and non-banking financial companies (NBFCs) in India, and the route back to normalcy, i.e the open-market, free trading of cryptocurrencies in the country, remain just slightly less murkier than what it was prior to the clarification.

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