Indian banks yet to warm up to crypto transactions

No support from most banks despite the growing investor interest in cryptos

Cryptocurrency exchanges in India have a problem: They have no support from most banks despite the growing investor interest in crypto assets.

The exchanges are forced to rely heavily on digital wallets as most banks are still unwilling to allow crypto transactions through their networks. The attitude hasn’t changed much despite India taking its first real step towards adopting cryptocurrencies by unveiling plans on Budget Day to tax income from the transfer of virtual digital assets at 30%.

“We will wait for regulatory clarity and then act accordingly, even on discussions with these exchanges,” Shekhar Bhandari, President - Global Transaction Banking at Kotak Mahindra Bank, told DH.

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HDFC Bank, State Bank of India and ICICI Bank did not respond to queries seeking comment. The Reserve Bank of India did not return an email with DH queries on the topic. To make matters complicated, crypto exchanges have not done enough to fully meet KYC requirements and comply with regulations tied to foreign exchange management and prevention of money laundering, Kotak pointed out.

KYC stands for “Know Your Customer” and refers to the mandatory process of identifying and verifying the client’s identity when opening an account and periodically over time.

“These exchanges are at various stages of achieving these requirements,” Bhandari said.

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The conversations between the banks and the crypto exchanges haven’t made much progress.

“What we are discussing with them has not changed. Things have not gone ahead. They still want to know our KYC patterns,” said Mridul Gupta, the chief operating officer of crypto exchange CoinDCX. RBI’s recent views on crypto haven’t helped the situation either. “Cryptocurrencies do not conform to this understanding of a currency as they do not have an issuer, they are not an instrument of debt or commodities nor do they have any intrinsic value. Currency needs trust, not everything that can be trusted is a currency. So even if technology (as in a blockchain) provides the trust for cryptocurrencies, they can at best perform the role of a currency within the private and closed environment of that cryptocurrency. They do not, and should not, automatically become a currency for the larger society,” RBI Deputy Governor RBI T Rabi Sankar said in a speech earlier this month.

Sankar also referred to how private currencies have historically resulted in instability and elaborated on how the role of the rupee as a currency will be undermined if they are allowed.

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Lawyers said the situation might change once the revised crypto bill sees daylight.

“The government has not yet released the revised bill that will seek to regulate crypto, but it has indicated that it is likely to allow some use cases. Some banks are waiting for clarity on the regulatory position before they enter the crypto ecosystem and allow trading and other crypto transactions,” said Shilpa Mankar Ahluwalia, Partner and Head – Fintech, Shardul Amarchand Mangaldas & Co.

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