The clarification comes after major banks such as HDFC Bank and the State Bank of India issued warnings to their customers through email in recent days, citing the circular, to avoid trading in virtual currencies such as bitcoin.
The Reserve Bank of India (RBI) explained on Monday that the 2018 circular urging lenders to halt dealing in virtual currencies was no longer legitimate, as it was invalidated by the Supreme Court in March 2020. This is a significant relief for crypto exchanges and investors. The clarification comes after major banks such as HDFC Bank and the State Bank of India issued warnings to their customers through email in recent days, citing the circular, to avoid trading in virtual currencies such as bitcoin.
ICICI Bank and Paytm Payments Bank, among others, have severed relations with cryptocurrency exchanges and banned their ability to receive rupee deposits in the last month.
The Reserve Bank of India (RBI) stated on Monday that banks cannot refuse transactions based on the Reserve Bank of India’s (RBI) 2018 circular because it is no longer “valid.” Banks have been refusing to provide services to consumers dealing with virtual currency, prompting the clarification. Some banks, such as HDFC Bank and State Bank of India (SBI), have even threatened account suspension if users continue to trade.
“On March 4, 2020, the Supreme Court struck down the 2018 circular (on cryptocurrencies).” As a result, the circular is no longer valid as of the date of the judgement and so cannot be referred or quoted from, according to RBI. However, the regulator recommended banks to continue performing due diligence on customers before engaging in any crypto-related transactions, as well as ensuring compliance with relevant laws of the Foreign Exchange Management Act (FEMA) for foreign remittances.
In the absence of a clear order from RBI on the Supreme Court ruling, major financial institutions, including ICICI Bank and Paytm Payments Bank, have suspended links with crypto exchanges and banned their capacity to receive rupee deposits during the last month. According to industry analysts, the regulator’s clarification will allow lenders to interact with the crypto industry.
“The crypto community as a whole is relieved. Banks have been debating whether or not to provide services to the crypto business. However, we expect that this circular would motivate banks to improve their compliance teams and allow banking access to Indian cryptocurrency exchanges,” said Nischal Shetty, CEO and Founder of WazirX, India’s largest cryptocurrency exchange.