A number of large private banks have started pulling out of cryptocurrency exchanges and some have shut down account services for these companies, at least two people who were aware of the matter told BloombergQuint. The decision follows an impetus from the Reserve Bank of India asking banks to review the extent of their exposure to cryptocurrency businesses.

RBI has informally called banking teams to obtain information on the scope of its business with cryptocurrency traders and exchanges, two private sector bankers told BloombergQuint on condition of anonymity. The regulator, in turn, has asked banks to reconsider this deal, although no formal circular has been issued asking banks to withdraw.

The RBI did not immediately respond to requests sent on Tuesday. Medianama reported for the first time on Tuesday that banks were withdrawing from cryptocurrency exchanges following inquiries from RBI.

Major banks that have pulled out include ICICI Bank, HDFC Bank, IndusInd Bank, and Yes Bank. Emails to these lenders were not replied to immediately.

Beware of the upcoming legislation?

According to the aforementioned bankers, the informal instructions from RBI have come as the regulator expects the government to ban cryptocurrency trading in India in the coming months. The government is expected to present the bill at the next parliamentary session, the bankers said.

The founder of a cryptocurrency exchange, speaking on terms of anonymity, said the actions taken by leading banks “came out of the blue” and violated the 2020 Supreme Court order.

A second founder, who also spoke about the conditions of anonymity, said that the banks’ move was made without any appropriate hint and was based solely on verbal communication.

In April 2018, the RBI had banned all of its regulated companies from interacting with companies in connection with cryptocurrency. This was challenged in the Supreme Court and in March 2020 the Apex Court overturned the RBI’s policy.

RBI’s circular failed the test of proportionality, the Supreme Court said in response to the regulator’s arguments that the deal posed a threat to the financial system.

Since then, the government has been working on laws related to cryptocurrencies. In the parliamentary budget session, a bill was listed whose nomenclature proposed that all cryptocurrencies would be banned. However, the bill has yet to be introduced.

Meanwhile, the RBI took the view that cryptocurrencies are not preferred in India. In an interview with PTI in February Das said, “We have some major concerns about cryptocurrencies. We communicated it to the government. It is being examined in the government and I assume that sooner or later the government will take a call and Parliament will also think about it and decide if necessary. “