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Crypto Industry Criticises Lack of Bank Support for Cryptocurrencies, Asks RBI to Define Crypto Banking Relations

Crypto Industry Criticises Lack of Bank Support for Cryptocurrencies, Asks RBI to Define Crypto-Banking Relations

The request comes shortly after the Basel Committee's decision to released a ‘disclosure framework’ for banks dealing with crypto transactions.

Written by Radhika Parashar, Edited by David Delima | Updated: 15 July 2024 17:11 IST

Crypto Industry Criticises Lack of Bank Support for Cryptocurrencies, Asks RBI to Define Crypto-Banking Relations

Photo Credit: Reuters

India’s crypto sector says the RBI should take the first step to define crypto-banking relations

Highlights

RBI is yet to clearly define crypto rules in India, as per crypto firms
The central bank previously expressed concerns over financial disturbance
The industry wants the RBI to task one entity with crypto-related work

The crypto sector in India has once again criticised the lack of regulation related to cryptocurrencies in India. The industry has urged the Reserve Bank of India (RBI) to define the relations between crypto firms and traditional banks, as the latter have shown no inclination to engage with them in the absence of rules and regulations. The RBI oversees the third largest fintech ecosystem in the world, which is also capable of dealing with virtual digital assets (VDAs), a core Web3 technology. The Finance Ministry, led by Union Minister Nirmala Sitharaman, has pro-actively been drafting and deploying laws over the crypto sector, aiming to ensure safety of the citizens and institutions that engage with these volatile and risky assets.

If the relation between banks and crypto firms are elaborate and detailed, banks could use crypto assets to clear and settle financial trades at a faster pace, while reducing dependencies on physical paper notes and logging unchangeable transaction histories, according to these crypto firms.

In conversation with Gadgets360, insiders from the crypto and Web3 circles in India have asked the RBI to take the first step to define the relationship between crypto and banking in India.

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Crypto Firm Executives Ask RBI to Be More Proactive

Manhar Garegrat, the Country Head at Liminal Custody solutions states that none of the major Indian banks have expressed a strong desire to start holding crypto or to engage with crypto-related businesses. This, he claims, is due to the lack of rules that define the relations between banks and crypto firms.

Niche fintech tools and cryptocurrencies have become the topic of discussion for governments around the world as they provide a quick way to process peer-to-peer transactions, while offering layers of privacy and anonymity as well as eliminating the need for a bank or a broker to process these transactions.

The repeated requests from the crypto sector comes as financial authorities in other countries are working to define the parameters that banks need to follow while working with the crypto sector.

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Earlier this month, the Basel Committee of Banking Supervision (BCBS) released a ‘disclosure framework' that directs banks to maintain public records of their crypto engagements and their exposure to these risky assets. The aim of this rule is to maintain transparency for the user communities of banks, that offer support for crypto-related activities, despite the fluctuating nature of the prices of these assets. This rule will be deployed across the 45 nations that adhere to the BCBS, including India and the deadline for banks to align with this rule is January 1, 2026.

It has been over ten days since BCBS' disclosure framework was announced, but the RBI has yet to release a statement on the development.

Eashwari Nair, legal counsel at Onramp Money (a technology solution that allows users to purchase and sell virtual digital assets) said that the RBI is in a unique position compared to other departments of the government given its direct oversight on the operations of the banks, which is why, its involvement in monitoring the relation between banks and the crypto sector is pivotal.

“Should the RBI consider tailoring laws defining crypto-bank relationship? [...] The RBI should consider laying down a framework that guide the relationship of banks with crypto businesses to help realise the gains of innovation and accelerate the adoption of cryptocurrencies,” Nair said.

She added that if the RBI strategically creates apt laws to define the links between crypto and banks, they can monitor and observe the inflow and outflow of capital while securing India's monetary stability.

Crypto Firms Seek Single Entity to Deal With Crypto Sector

Some crypto firms are concerned that RBI's ‘conservative' practices may delay the growth of the links between banks and the crypto sector even further in India. “Guidelines come after a positive industry outlook. With the RBI still being extremely discouraging of VDAs, it doesn't seem likely that RBI will be leading the crypto holding parade,” Subha Chugh, Web3 and fintech-focussed lawyer told Gadgets 360.

Her opinion was seconded by early stage Web3 investor Jagdish Pandya, who further added that the RBI should choose one government-linked authority to implement all crypto-related work.

“The RBI is not a defined regulatory body for India regarding crypto regulations. Dubai has set up VARA, Singapore has the MCA, Thailand has the SET, Malaysia has the SCM, and the US has the SEC – to oversee the crypto sector. Let the government decide a dedicated Web3 regulator first,” Pandya noted.

Gadgets360 has reached out to the RBI for a comment on the requests from the crypto sector, and will update this story once a response is received. The central bank's has previously stated that its priority remains ensuring that India's financial system is not disturbed by the involvement of cryptocurrencies in the system.

RBI's Stance on Crypto in India

RBI officials have previously expressed concerns that cryptocurrencies could snatch the RBI's control over India's money supply and inflation management.

In 2022, RBI governor Shaktikanta Das had issued a warning against engaging with crypto, saying that tulips have more value than digital assets. At present, the overall market cap of the crypto sector meanwhile, stands at $2.30 trillion (roughly Rs. 1,91,30,394 crore), as per CoinMarketCap.

In 2022, Coinbase blamed RBI's informal pressure for halting the integration of the unified payments interface (UPI) with crypto trading apps. At present, the RBI is working on testing India's eRupee Central Bank Digital Currency (CBDC) - which will work like a cryptocurrency but will be issued and regulated by the RBI itself.

Is the Samsung Galaxy Z Flip 5 the best foldable phone you can buy in India right now? We discuss the company's new clamshell-style foldable handset on the latest episode of Orbital, the Gadgets 360 podcast. Orbital is available on Spotify, Gaana, JioSaavn, Google Podcasts, Apple Podcasts, Amazon Music and wherever you get your podcasts.

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Further reading: Cryptocurrency, RBI, Web3, Crypto Banking Relation, Basel Committee Crypto Law

Radhika Parashar

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Radhika Parashar is a senior correspondent for Gadgets 360. She has been reporting on tech and telecom for the last three years now and will be focussing on writing about all things crypto. Besides this, she is a major sitcom nerd and often replies in Chandler Bing and Michael Scott references. For tips or queries you could reach out to her at RadhikaP@ndtv.com. More