Indian cryptocurrency exchanges got some relief from the country’s generally hostile central bank on Monday, as it told banks not to cite a 2018 memo ordering banks to avoid digital currency businesses.
The three-year-old memo was overturned by the Supreme Court in March 2020, making it far easier for cryptocurrency exchanges to operate in India. While that ruling sparked a boom in exchanges, the government is widely reported to be considering a total ban on cryptocurrencies.
Citing media reports, a notice posted by the Reserve Bank of India on May 31 instructed banks and other regulated entities that “in view of the order of the Hon’ble Supreme Court, the circular is no longer valid from the date of the Supreme Court judgement, and therefore cannot be cited or quoted from.”
On May 31, Business Insider India reported that major banks including the State Bank of India (SBI) — which is majority-owned by the government — and HDFC Bank had begun asking customers about cryptocurrency trading done via their accounts, which those banks said was banned.
Business Insider India cited an email a HDFC client received saying, “We have observed that your account reflects probable virtual currency transactions, which aren’t permitted as per RBI guidelines.”
While that tactic is not allowed, banks may, the RBI notice added, “continue to carry out customer due diligence processes in line with regulations governing standards for Know Your Customer (KYC), Anti-Money Laundering (AML), Combating of Financing of Terrorism (CFT) and obligations of regulated entities under Prevention of Money Laundering Act, (PMLA), 2002 in addition to ensuring compliance with relevant provisions under Foreign Exchange Management Act (FEMA) for overseas remittances.”
Rethinking a Ban
In mid-May, India’s Economic Times reported that the government was thinking of setting up an expert panel to look into regulating cryptocurrencies and what those regulations should contain. That came after months of reports citing senior but unnamed government officials that a total ban was coming.
Concerns about such a law was partially alleviated on March 14, when Indian Finance Minister Nirmala Sitharaman said that while regulations were coming the government did not plan to “shut off all cryptocurrency.”
The administration, she added, was aware that firms in the rapidly growing financial technology (fintech) sector needed to be able to experiment with blockchain technology powered by cryptocurrencies.