Does India’s Stance On Crypto Soften?
Let Klever's own Indian Customer Support Agent Harish Kumar guide you through the latest moves regarding Indian crypto regulation, and what might be coming next as India softens its stance on crypto.
The latest directive by the Reserve Bank of India (RBI) comes against the backdrop of investor communication by various banking entities like HDFC, SBI, which cited 2018 circular and intended to alert them of the “uncertain regulatory landscape” of this space.
Investors were asked to clarify the nature of these transactions and be aware of the risks associated with crypto and virtual currencies. The mails sent out by these banks in this regard also stated that failure to do so could mean permanent closure of bank accounts and suspension of credit cards.
RBI clarified on May 31 in an official statement that banks cannot cite the 2018 circular for such communications. This is because, the circular was quashed by the Supreme Court of India on a petition filed by Internet and Mobile Association of India in March, 2020.
The RBI said “Such references to the above circular by banks/ regulated entities are not in order” and “in view of the order of the Hon’ble Supreme Court, the circular is no longer valid from the date of the Supreme Court judgement, and therefore cannot be cited or quoted from."
The circular, issued on Monday, is addressed to all commercial and co-operative banks, payments banks, small finance banks, NBFCs and payment system providers.
The regulator, in fact, has not taken any position on the validity and legality of cryptocurrency transactions in India. It has, only avoided a potential legal risk inviting a contempt of the Supreme Court by maintaining silence when a clutch of banks have used its old, invalid circular to keep the crypto space away.
This is because in March, 2020 when the Supreme Court quashed the crypto circular on a petition by the Internet and Mobile Association of India v. Reserve Bank of India, the respondent was the RBI and not banks and, hence, any contempt proceedings will befall on the RBI, not banks if the crypto lobby moves to court against banks using the 2018 RBI circular.
The RBI, clearly, doesn’t want to invite the embarrassment of Contempt of Court and invite the wrath of the judiciary in this issue. Hence, the regulator (most probably based on a legal advice), has only safeguarded its position with the clarification.
While the RBI has not so far formed a public opinion on crypto regulations, what we know so far is the regulator has so far expressed its concern against using cryptocurrency as a medium of exchange. The RBI is in favour of a central bank-backed digital currency but clearly not cryptocurrency as a medium of exchange.
The RBI clarification doesn’t mean banks have the permission from the regulator to deal in cryptocurrencies. In fact, the RBI has clearly warned banks to exercise caution citing a raft of pertinent regulations such as 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 and compliance with relevant provisions under Foreign Exchange Management Act (FEMA) for overseas remittances.
India has been estimated to have more than 20M+ crypto investors and this number is increasing everyday as Indian exchanges are struggling to manage the traffic on their platforms, while a significant number is a coming in to the crypto space, one piece of misinformation is holding back many more millions from the crypto space. People confuse the unregulated aspect of cryptocurrencies with being illegal.
Cryptocurrencies are not illegal, anybody can buy, sell and trade cryptocurrencies in India. However, we don’t have a regulatory framework to govern its functioning as of yet. The Indian government is however exploring crypto regulation.
Both Finance Minister Nirmala Sitharaman and Minister of State Finance and Corporate Affairs Mr Anurag Thakur stated publicly that government would take " a calibrated" approach in regulating cryptocurrency rather than impose an outright ban.
RBI circular is a clear indication that government is softening its stance on cryptocurrencies, RBI's circular and new panel of experts formed by government to study the possibility of regulating cryptocurrencies are the good news for Indian crypto investors and crypto start-up in India.
The Crypto Currency and Regulation of Official Digital Currency Bill, 2021 was scheduled to be tabled in the Budget session of Parliament in March. However, it was deferred for reasons not made public. It is widely expected that the proposed legislation will be tabled in the upcoming monsoon session. Only time will tell if this softened stance from the Indian government towards crypto will lead to more clear regulation.
Klever Customer Support Agent in Bengaluru, India