The lack of rules for trading cryptocurrencies in India creates political gray areas that various stakeholders use to their advantage. According to a Reuters report dated May 13, 2021, the Central Bank of India, the Reserve Bank of India (RBI), recently informally asked Indian banks to suspend banking services for crypto deals.
With the March 2020 Supreme Court order already overturning a similar RBI order as illegal in March 2018, the latest RBI guidelines were handed out informally in private meetings with senior bank officials, the sources told Reuters.
At a time when cryptocurrencies are attracting more attention, the Indian cryptocurrency exchanges complained on Twitter last week that banks were stopping payments to and from the exchanges. It happened suddenly and without notice or reason.
ICICI Bank, one of the largest private sector banks in India, briefed the exchanges and their officials of the bank’s decision to block their accounts, citing the lack of policy clarity. The sudden move surprised everyone, especially the investors who turned to social media to express their frustration.
The Reuters report credits unnamed sources for asking banks not to offer banking facilities to crypto transactions. RBI’s objections focus on the high volatility and speculative nature of cryptocurrencies, which pose a risk to financial stability.
Also, the RBI believes that a large amount of money is flowing out of the country through crypto deals that can be used for money laundering and illegal activities.
Although RBI nudges took place in private discussions and were informal, banks are in no mood to ignore RBI’s proposals. According to the Reuters report, other banks such as Axis Bank, ICICI Bank and IndusInd banks are also reducing their exposure to crypto deals.
The central government had announced its intention to ban cryptocurrencies and introduce their digital coin under the auspices of the RBI. To this end, the Law on Cryptocurrency and the Regulation of the Official Law on Digital Currencies (2021) should be presented in the Indian Parliament during the budget session in February. However, due to the increasing number of Covid-19 cases, the government was unable to prioritize the bill.
Meanwhile, on Friday (April 14, 2021), a virtual conference of entrepreneurs and experts in the field of cryptocurrency under the banner of the Blockchain and Crypto Assets Council (BACC) dealt with the development of the Crypto Regulatory Framework – developments in India and Singapore.
Some of the speakers were of the opinion that India should be based on Singapore and create a suitable legal framework for technical innovations such as cryptocurrencies and other blockchain technologies and products in order to create a level playing field.
Earlier this year, Singapore updated its Payment Services Act, under which companies that facilitate the transfer, exchange or storage of cryptocurrencies should have an operating license.
The Singapore government changed the Payment Services Act to cover cryptocurrency trading. The changes require all crypto traders involved in the transfer, exchange and storage of cryptocurrencies to obtain a license to continue their business. They also fall under the expanded rules of the Central Bank of Singapore.
One of the most recognizable faces of the Indian cryptocurrency scene, Nischal Shetty, who is also CEO of WazirX, one of the largest Indian crypto exchanges, said at the BACC conference, “As an industry, we would prefer to see some guidelines that do this would help solve the banking problems that exist in the country and the uncertainty many of our customers in the country have about what protection to expect. “