Indians can no longer avail the services of the country's banks to purchase and sell cryptocurrencies after the central bank on Thursday slapped an immediate ban on banks providing services to investors in digital currencies.
In its first bi-monthly monetary policy review, the Reserve Bank of India said, "In view of the associated risks, it has been decided that, with immediate effect, entities regulated by RBI shall not deal with or provide services to any individual or business entities dealing with or settling VCs (virtual currencies)."
The central bank asked banks already providing such services to cryptocurrency investors to stop them within a specified time, which, Deputy Governor Bibhu Prasad Kanungo said at a press conference, is three months. The RBI said it also issued a separate circular in this regard.
"Technological innovations, including those underlying virtual currencies, have the potential to improve the efficiency and inclusiveness of the financial system," the RBI said
"However, Virtual Currencies (VCs), also variously referred to as crypto currencies and crypto assets, raise concerns of consumer protection, market integrity and money laundering, among others," the bank added.
India is one of the booming markets for cryptocurrency. The country has several cryptocurrency exchanges and Indians took to cryptocurrencies in a big way, especially after the demonetization in late 2016.
However, the central bank, like its peers elsewhere in the world, has always voiced caution. In the past, it has repeatedly issued warnings against investing in cryptocurrencies.
Some leading banks such as the State Bank of India, which is the biggest lender in the country, HDFC, and Citibank have also sounded caution and some even prevented their customers from using debit or credit cards for cryptocurrency purchases.
While the current government nurses hopes of a cashless society, the finance minister Arun Jaitley has warned against investing in cryptocurrencies. He has repeatedly said that investing in cryptocurrencies are not legal.
But, that has caused confusion in the crypto community regarding regulation as the government has not said that cryptocurrency investments are illegal.
Such uncertainty is also being reflected in the crypto market trends in India, where the enthusiasm is waning, industry experts believe.
Meanwhile, the RBI has formed an inter-departmental group "to study and provide guidance on the desirability and feasibility to introduce a central bank digital currency." The group is expected to submit a report the end of June.
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