In a recent response to a Right to Information query, the Reserve Bank of India, the Indian central bank, has stated that there is no prohibition on banks to provide bank accounts to cryptocurrency traders. But some banks have been arbitrarily denying services to crypto users and are still doing so. If there is no law banning crypto trading, as emphasized by India’s Supreme Court, and there is no prohibition on banks by the RBI, then why aren’t banks treating crypto-related activities on par with other legitimate activities?
The RBI banking ban on crypto was set aside by the Supreme Court on March 4, 2020. In its detailed judgement of over 180 pages, the Supreme Court stated that the RBI action is extremely disproportionate in severing the lifeline (banking services) for cryptocurrency trading business despite crypto trading not being illegal under any Indian law and no harm or damage is proved to have been caused to these banks as a result of their relationship with crypto exchanges. Thus the judgement, without speaking any good or bad about cryptocurrency, rendered the legality of crypto back to its erstwhile status as it was before the RBI’s ban: a state of regulatory vacuum.
Has the judgement provided any relief to crypto?
The judgement was celebrated by Indian crypto enthusiasts as rainfall after a drought. However, it has not eradicated the banks’ hostility toward crypto, as most banks so far have refused to mend their ways. Various news reports have given accounts of individual crypto users being denied services by banks in one way or another. Here are some instances:
- Freezing and closing bank accounts for conducting peer-to-peer sales and purchases of crypto
- Rejecting international debit or credit card payments for purchasing crypto
- Blocking international wire transfers when the source of funds is cited to be a crypto-related business
In denying these services, the banks claimed that they are waiting for an RBI update in light of the Supreme Court’s judgement, but the absence of corresponding legal obligation of the RBI to issue any such update renders this excuse totally unreasonable. In contrast, some banks are indeed providing services to crypto exchanges, although sometimes with a withdrawal restriction. Considering the RBI’s recent response to the Right to Information query stating simply that there is no prohibition on banks as well as the fact that banks are expecting updates from the RBI, one thing is clear: The RBI is not particularly interested in breaking the current state of confusion.
Where do we stand today?
As the situation stands today, the two cases seeking regulation or ban on crypto are still pending in the Supreme Court. The government has been consistent with its stance in court to introduce the infamous Crypto Banning Bill in the Parliament of India, which prescribes 10 years imprisonment simply for holding…