Reserve Bank of India states banks should not rely on outdated crypto ban circular

• While Indian banks have warned customers against using their services for trading crypto, the country’s central bank has recently clarified its stance on digital assets.
• The Supreme Court quashed the banking ban last year, but banks continued to follow the old circular.
• The Reserve Bank of India told banks not to rely on the previous crypto bank that said financial institutions should not work with cryptocurrency exchanges.

The Reserve Bank of India (RBI) has recently clarified its previous ban that forced banks to deny services to customers involved in cryptocurrency transactions. 

Crypto ban in India no longer valid

India’s Reserve Bank issued a new circular, making essential clarifications on the current regulations on Bitcoin and other cryptocurrencies.

The RBI stated that although banks need to perform customer due diligence, digital assets are not outlawed. The central bank told banks not to rely on an old circular that expressed that financial institutions should not work with crypto exchanges. The RBI said:

It has come to our attention through media reports that certain banks/regulated entities have cautioned their customers against dealing in virtual currencies by making a reference to the RBI circular dated April 06, 2018.

In the 2018 notice, the Indian central bank said that banks could not deal with any “individual or business entities dealing with or settling virtual currencies.” Last year, the Supreme Court in India ruled that the RBI’s circular carried no weight, and banks could continue transacting with crypto companies as they wish.

However, major Indian banks continued to halt services for crypto exchanges despite the ruling. Crypto companies in the country have challenged the RBI, even threatening to take the central bank to the Supreme Court after it informally told banks to cut ties with digital asset firms earlier this month.

The clarification by the Indian central bank comes at a time when the country’s top lenders, including State Bank of India and HDFC Bank, are sending reports to certain clients inquiring about their crypto-related transactions. The two banks also warned of cancellation or suspension of their clients’ cards, citing the 2018 circular. 

Now the RBI has listened to the demands of cryptocurrency exchanges in the country. The central bank’s chief general manager, Shrimohan Yadav, said in a notice:

In view of the order of the Hon’ble Supreme Court, the circular is no longer valid from the date of the Supreme Court judgment, and therefore cannot be cited or quoted from.

The clarification brings relief to the crypto community, as many anticipated a blanket ban on cryptocurrencies, according to recent rumors regarding the uncertainty on regulations. In March, a senior government official stated that the country expects a complete ban on digital assets for those who mine, trade, possess or transfer cryptocurrencies.