India’s central bank indicates rethink on cryptocurrencies

June 29, 2018
Chris Wheal

The Reserve Bank of India (RBI), which in April imposed a ban on the country’s regulated financial institutions providing services to companies and individuals dealing with virtual currencies, may be ready to reconsider its attitude.

Reserve Bank of India logo.

The Reserve Bank of India cracked down on cryptocurrencies in April.

Subash Chandra Garg, secretary of the Department of Economic Affairs in the Indian government, said that a petition protesting against the ban was under review and a hearing will be held next Tuesday, July 3.

“We are fairly close to developing a kind of template, which we think might be in the best interest of the country,” he confirmed. “We have prepared a draft, which we intend to discuss with the committee members in the first week of July.”

The RBI announced the ban on April 5, when a statement issued by the bank read: “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 [virtual currencies].”

The RBI’s deputy governor, BP Kanungo, warned that if cryptocurrencies “grow beyond a certain size, they can endanger financial stability.”

Banks were issued with an ultimatum to “exit the relationship within three months from the date of this circular.” The three-month period runs out next Thursday.

The possibility of a change of heart comes as the China Banking Regulatory Commission (CBRC) publishes a working paper suggesting a move towards crypto activity licences. The move is significant as Chinese regulators have so far swerved away from any meaningful crypto licensing scheme.

Last-minute reprieve?

As the deadline approaches, one of India’s biggest digital currency exchanges, Zebpay, has asked users to withdraw their money in case no settlement is reached and banks discontinue its services in compliance with the RBI’s directive.

Zebpay has warned investors as the RBI deadline approaches.

Mumbai-based Zebpay said that together with India’s other digital exchanges, it has approached the Supreme Court to challenge the RBI directive, claiming that it is against the interests of citizens. However, the matter is sub judice and the exchange couldn’t offer assurance on the safety of investors’ money if banks stop providing services.

A statement issued by the company confirmed that: “while our industry is challenging this legally, the outcome is beyond our control. Hence, if you are holding any rupees, or depositing any rupees in Zebpay, there could soon come a time when we may not be able to honour withdrawal requests. Please continue only if you understand this risk.”

The company added that if Zebpay bank accounts are disrupted, rupee deposits and withdrawals will become impossible. “This can cause discontinuation of crypto trade based on rupees, or at least cause significant price movements,” it said. Those who had invested in digital currencies could place a withdrawal request until such time as the banks support such withdrawal.

Post written by Chris Wheal
Chris Wheal is editor of OpenLedger's news and features service. An award-wining business journalists himself, he runs a team of freelance journalists from across the UK and north America.

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