Banks Steer Away From Cryptocurrency Exchanges Under RBI Glare

The RBI has made informal calls to bank teams seeking information about the extent of business which they do with cryptocurrency traders and exchanges, two private-sector bankers told BloombergQuint on condition of anonymity. The regulator has, in turn, asked banks to rethink this business even though no formal circular asking banks to pull back has been issued.

The RBI did not immediately respond to queries mailed on Tuesday. Medianama first reported on Tuesday that banks are pulling back from cryptocurrency exchanges following queries from the RBI.

Among the large banks that have started to pull back are ICICI Bank, HDFC Bank, IndusInd Bank, Yes Bank. Emails sent to these lenders were not immediately answered.

Caution Ahead Of Upcoming Legislation?

According to the bankers quoted above, the RBI’s informal directions have come as the regulator is expecting the government to proceed with a ban on cryptocurrency trading in India in the coming months. The government is expected to table the Bill in the next parliament session, the bankers said.

The founder of a cryptocurrency exchange, speaking on conditions of anonymity, said that the action by leading banks has come “out of the blue” and is in violation of the Supreme Court’s order in 2020.

A second founder, who also spoke on conditions of anonymity, said that the move by banks had come without proper intimation and is purely based on verbal communication.

Regulatory Back & Forth

In April 2018, the RBI had barred all entities regulated by it from interacting with cryptocurrency-related businesses. This was challenged in the Supreme Court and in March 2020, the apex court set aside the RBI’s directive.

The RBI’s circular did not meet the test of proportionality, the Supreme Court said in response to the regulator’s arguments that the business poses a threat to the financial system.

Since then, the government has been working on legislation surrounding cryptocurrencies. In the budget session of parliament, it listed a Bill, whose nomenclature suggested that all cryptocurrencies would be banned. The Bill, however, is yet to be introduced.

In the interim, the RBI maintained that it is not favour of cryptocurrencies being traded in India. In an interview with PTI in February, Das said: “We have certain major concerns about cryptocurrencies. We have communicated them to the government. It is under consideration in the government and I do expect and I think sooner or later the government will take a call and if required Parliament also will consider and decide.”