The Reserve Bank of India (RBI), the country’s central bank, has clarified that banks can’t caution their customers against dealing in crypto, citing an old 2018 circular, which was overturned by the Supreme Court of India last year.
“It has come to our attention through media reports that certain banks/ regulated entities have cautioned their customers against dealing in virtual currencies by making a reference to the RBI circular … dated April 06, 2018,” said the RBI in an official statement Monday. “Such references to the above circular by banks/ regulated entities are not in order as this circular was set aside by the Hon’ble Supreme Court on March 04, 2020.”
In 2018, the RBI had passed a rule that restricted banks and other financial institutions from dealing with crypto clients, but the Supreme Court overturned that rule last year. Still, banks and financial institutions, including HDFC Bank and SBI Cards & Payment Services, as recently as last week, were reportedly citing the old circular, warning customers of restrictions.
It is not clear why banks were still citing the old circular. But they made a “big blunder,” and the RBI had to clarify eventually, Sharan Nair, the chief business officer at Indian crypto exchange CoinSwitch Kuber, told The Block.
“Banks can no longer caution customers against dealing in cryptocurrencies citing the 2018 RBI circular,” said Nair.
Nischal Shetty, CEO of Binance-owned crypto exchange WazirX, told The Block that it is an “excellent move” by the RBI.
“This brings in a lot of clarity for banks, which have been on the fence whether they should service the crypto industry or not,” said Shetty.
As well as crypto users, crypto exchanges have also been facing banking issues in recent weeks. But does the RBI’s statement mean they will no longer face those difficulties?
That will be clear in a week’s time, Nair told The Block, after banks have been contacted and responses received.
If banks no longer deny services to crypto exchanges, then it would be a “good news,” said Nair. If they continue to decline, “then we’ll have to be worried about that.”
Enforcing customer due diligence
In its Monday statement, the RBI also said that banks will have to carry out customer due diligence processes in line with regulations, including know your customer (KYC), anti-money laundering (AML), combating of financing of terrorism (CFT), and the Foreign Exchange Management Act (FEMA) for overseas remittances.
“Banks do due diligence on any business they work with,” Shetty told The Block. “Since we follow all the KYC and AML guidelines, this should work well for us.”
Looking at the bigger picture, while the RBI clarity provides some relief, India’s crypto fate depends on the country’s government. One that is likely to discuss a bill in the upcoming session of parliament.
The bill’s contents are not known yet, but it seeks to “prohibit all private cryptocurrencies in India” and create a framework for developing a central bank digital currency.
There has been much chaos and confusion when it comes to India’s crypto situation. On the one hand, the country’s finance minister Nirmala Sitharaman has said that the government will be taking a “very calibrated position” on crypto. On the other hand, the RBI Governor Shaktikanta Das has said that the central bank has “major concerns” about crypto from the financial stability angle.
But Indian crypto exchange operators remain optimistic, as The Block has reported previously. They expect India will regulate crypto as an asset class, rather than as currencies, since they are not legal tender in the country.
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