India’s Central Bank Removes Lingering Confusion Over Banking for Crypto Firms

India’s commercial banks can indeed provide banking services to traders and firms dealing in cryptocurrencies, the nation’s central bank clarified last week. 

“As on date, no such prohibition exists,” the Reserve Bank of India (RBI) said on May 22. The statement came in response to a query filed by BV Harish, co-founder of the cryptocurrency exchange Unocoin, under the Right to Information (RTI) Act.

As reported by The Economic Times on Tuesday, the RTI was filed on April 25, seeking clarification on whether banks were still prohibited from providing services to cryptocurrency traders and service providers despite a recent ruling by the Supreme Court to the contrary. 

On March 4, India’s Supreme Court quashed a Reserve Bank of India (RBI) order dating back to April, 2018, which restricted banks from providing services to entities dealing with cryptocurrencies. 

The RBI had initially planned to file a review petition challenging the Supreme Court’s verdict, as it reportedly believed that trading in virtual currencies would put the country’s banking system at risk. In the end, the central bank did not file the petition, however, neither did it clear the air on crypto trading and taxation. As a result, both banks and the crypto industry have been left in some confusion. 

“Since the Supreme Court’s decision, many crypto companies have started resuming their operations by opening up banking channels. However, many banks are still in a dilemma whether to offer their services to crypto companies or individuals since there has been no circular from the RBI ordering the lifting of the ban,” Ashish Singhal, CEO of the cryptocurrency exchange CoinSwitch.co, told CoinDesk. 

Meanwhile, Nischal Shetty, founder and CEO of Mumbai-based cryptocurrency exchange WazirX, said, “while the Supreme Court ruling had made it very clear that there are no curbs on banking for crypto businesses, the RBI reply to [the] RTI filing is very much welcome. There has been confusion amongst many banks despite the Supreme Court ruling because these banks have been waiting for information from RBI.”

CoinDesk reached out to a number of prominent Indian banks in March for information on whether they would allow their customers to use credit or debit cards to fund cryptocurrency purchases. We still haven’t received any reply.

Still, exchanges seem confident that the RBI’s clarification will accelerate the growth of the cryptocurrency space in India. “Hopefully, this response can clear up the confusion for the banks and bring clarity to the crypto community in India, which has shown consistent growth since March,” said Singhal. 

Shetty said he expects all banks to start servicing crypto businesses without any restrictions. “This marks yet another positive way forward for the crypto ecosystem in India,” he said. 

Some exchanges have already reported solid growth in volumes over the past two months. Mumbai-based CoinDCX, a cryptocurrency trading platform and liquidity aggregator witnessed 150% growth in daily active users in March alone, chief executive Sumit Gupta told CoinDesk.

“While some cryptocurrency businesses reportedly had trouble accessing banking support, CoinDCX and many other crypto businesses had no difficulty accessing the traditional finance sector,” Gupta added.