India Cryptocurrencies: This clarification is in light of recent investor communications by different banking entities such as HDFC, SBI. They cited 2018 circular to inform them about the “uncertain regulatory environment” in this space.
The Reserve Bank of India’s (RBI)
The Reserve Bank of India’s (RBI) clarified on May 31 that banks and other regulated entities can no longer cite its 2018 circular regarding cryptocurrencies. It was rescinded by the Supreme Court (SC), in March 2020. According to the RBI, the circular was invalid from the date of the SC decision and cannot be quoted or cited from.
This clarification is in light of recent investor communications by various banks entities such as HDFC, SBI. These communication cited 2018 circular and meant to alert them about the “uncertain regulatory environment” in this space. The banks asked investors to clarify the nature and understand the risks associated with virtual currencies and crypto. These banks sent mails to investors stating that failure to comply could result in permanent bank account closures and suspension of credit cards.
What does this mean for investors?
WazirX is one of India’s most important cryptocurrency exchanges and welcomed the move. Wazir X CEO Nischal Shetty hailed the move as a positive sign and said that it was a ray for the Indian crypto community. We appreciate the clarification provided by Reserve Bank of India. We hope this circular will encourage banks to improve their compliance teams, and to provide banking access for Indian crypto exchanges.
Due to the incomprehensible and gray cryptocurrency regulations in India, many banks have started disaffiliating themselves from cryptocurrency exchanges such as Coin DCX, WazirX, etc. Paytm severed its ties to WazirX more recently. This left many crypto investors unable withdraw or deposit money from accounts that were linked with the payment giant.
The investor’s ire was evident
The investor’s ire was evident, with many complaining of long delays and inability to deposit funds in time, which led them to miss market dips, generally considered a good time to buy. Karan Anand, an avid, distressed crypto investor mentioned how it is important for crypto-exchanges to smoothen their deposit process. “You cannot have people waiting for days to be able to buy crypto, especially when the claim by most exchanges is to be able to do so in a few minutes”, he said.
Considering the significance of RBI’s directive for banks, a clarification by RBI comes as a respite for most crypto exchanges. The inability of the apex bank to prove how regulated financial entities will suffer due to cryptocurrency operations has always been a bone of contention, hampering the smooth growth of crypto-related services in the country.
Delhi-based communications professional Yumna Ahmad, who regularly invests in cryptocurrency finally sees some ease of transactions. “This is a great move since this brings clarity to banks as to whether they should engage with the crypto industry or not. Since now there are chances of increased cooperation of banks with crypto-exchanges, we can expect ease of trading and more payment and deposit options in the near future”, she said.
Echoing similar views, Rameesh Kailasam of Indiatech said the clarification by RBI is timely and encouraging as it formally establishes the old circular was no longer valid post the SC judgement and that banks cannot use this as the reason for denial.
“IndiaTech.org has been seeking regulatory clarity for this sector backed by necessary checks and balances which would enable it to grow at a more rapid rate. IndiaTech.org recommended similar checks and balances regarding KYC, AML, CFT, FEMA etc. as the RBI now suggests to be carried out to ensure due diligence. We are hopeful there will be continued support from the government and regulator to progressively adopt this emerging technology,” Kailasam added.
All in the clear?
The circular does not mention banks being required to exercise due diligence when dealing with cryptocurrency. Banks were asked to continue complying with relevant provisions of KYC (Know-Your-Consumer), AML (Anti-Money Laundering) laws, amongst others.
“We are pleased that the RBI has clarified the position on the old circular, which was rescinded by the Honorable Supreme Court. I hope that confusion surrounding the same will end now. We understand the concerns banks might have about AML (anti money laundering) policies. Discussions around these issues will strengthen the industry and make investors and investments more secure. Sumit Gupta is the CEO and Co-founder of Coin DCX.
All financial institutions must follow the statutory requirement of due diligence. This all points to the potential for a thriving cryptocurrency industry that has been largely hampered by unclear government policies and unclear regulations. India is the world’s largest country for virtual currency trading, with more than $1 billion in investments in cryptocurrency despite a confusing landscape.
Experts in the industry now believe there is a chance for meaningful industry-government collaboration on crypto-related policy issues. Sandeep Naliwal (Co-Founder and Chief Operations Officer of Polygon, an Indian Blockchain Scalability Platform), said that this is a positive development for the ecosystem. He also stated that there is a general consensus among regulators and the government against the suppression of innovation and growth in India’s Crypto ecosystem.
Polygon rose to fame after Mark Cuban, Shark Tank’s star investor, invested in the company. Matic, Polygon’s native token has seen its value rise from $26 million at its inception in 2019 up to over $14 billion.
“RBI’s statement regarding cryptocurrency investments to banks clarifies their position on whether customers can legally invest in crypto. Instead of refusing service to customers on the basis of an invalid circular, banks should get on board the crypto investment bandwagon. They should allow crypto exchanges to have accounts with them and let customers make investments via UPI, bank transfers, and all other options. “Cryptocurrencies are the future, and we must ensure that we remain at the forefront” says Ashish Singhal CEO of Coinswitch Kuber.
A formal regulation of the cryptocurrency sphere is possible now that RBI has given its green light to the trading of cryptocurrencies, and with more people and companies embracing blockchain and its underlying applications, it is no longer a distant dream. It is essential that the country has a favorable environment to encourage greater financial inclusion and participation as it looks forward to increased financial inclusion.