Indian banks begin easing restrictions on crypto investments
After 15 months of Supreme Court order, banks have opened doors for crypto investors, exchanges for using their platform to trade virtual currencies.
Months after the Reserve Bank of India (RBI) issued a notification to banks citing the 2018 circular banning crypto currencies is no longer valid, banks have started providing services to its customers who were trading in cryptocurrencies.
As Indians flock to the cryptocurrency market with renewed interest, banks are adding to their enthusiasm.
They are again allowing the purchase of cryptocurrencies through their channels, easing curbs that they had imposed on such services.
Private banks like HDFC Bank, ICICI Bank and Axis Bank are allowing transactions in virtual currencies through the unified payment interface (UPI) platform.
UPI is an instant real-time payment system developed by National Payments Corporation of India (NPCI) facilitating inter-bank peer-to-peer and person-to-merchant transactions.
Many crypto exchanges have started offering instant Rupee deposit & withdrawal along with net banking facilities of Punjab National Bank, Union Bank of India, IDBI, IDFC First Bank, Federal Bank and Deutsche Bank to make payments for crypto purchases.
As the market is opening up, more and more banks will be joining this. This will provide a lot of respite to all crypto investors, who wanted to invest in cryptocurrency by using banks.
Delay of 15 months
However, this comes 15 months after the Supreme Court in March 2020, set aside RBI's circular which warned against investments into cryptocurrency and deny cryptocurrency services.
Due to this, many investors could not invest in the crypto currency market. Some of the crypto exchanges had shut their operations, while some migrated to pro-crypto nations.
Even after the SC order, several banks including HDFC Bank and State Bank of India, had officially flagged transactions relating to the purchase of cryptocurrency, warning customers of curbs, including permanent closure of accounts.
Many investors were getting calls from the banks that their accounts will be closed, if they trade in cryptocurrency. Lenders were also sending official notices to many customers warning them of curbs, including permanent closure of accounts, if they continue their dealing in cryptocurrencies.
Many customers were asked to clarify the nature of transactions and warn credit card users that transactions of virtual currency will lead to suspension/cancellation of the card.
But, due to consistent efforts of crypto exchanges, RBI issued a statement in June 2021 clearing its stand on crypto trading through the banking channel.
RBI's red flag
However, RBI in its June 2021 circular asked banks to as well as other entities to continue 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.
A grey area
Despite the boom in the crypto market, cryptocurrencies are still looked at with suspicion due to RBI's hostile nature towards it. Even the government has not yet decided on its legality.
Though there are positive signals from the government side that crypto will not be completely banned, nothing will be clear unless the Crypto Bill 2021 draft is in public, which is expected next month.
There is no legislation or regulatory code yet to govern the crypto ecosystem, leading to confusion among customers, businesses and financial institutions providing banking services.
Eventually, banks in India have started servicing crypto investors and exchanges is a positive sign. This also brings a sigh of relief for those who have already invested their money in crypto for the past few years.
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