The Reserve Bank of India (RBI) issued a circular on Monday, 31 May, clarifying that crypto transactions cannot be blocked by the banks, citing a 2018 RBI circular, which cautioned customers against dealing in virtual currencies.
RBI in a circular acknowledges that "in view of the order of the Hon’ble Supreme Court, the circular is no longer valid from the date of the Supreme Court judgement, and therefore cannot be cited or quoted from".
The circular further read, " Such references to the above circular by banks/regulated entities are not in order, as this circular was set aside by the Hon’ble Supreme Court on 4 March 2020 in the matter of Writ Petition (Civil) No. 528 of 2018 (Internet and Mobile Association of India vs Reserve Bank of India)," the RBI said.
This move has come a day after HDFC Bank and State Bank of India wrote an email to customers stating that users who deal in virtual currencies may face account suspension, citing a 2018 circular from the Reserve Bank of India.
However, RBI has asked banks to carry out the necessary customer due diligence process, in line with regulations governing standards for "Know Your Customer (KYC), Anti-Money Laundering (AML), Combating of Financing of Terrorism (CFT) and obligations of regulated entities under Prevention of Money Laundering Act, (PMLA), 2002 in addition to ensuring compliance with relevant provisions under Foreign Exchange Management Act (FEMA) for overseas remittances."
Why Are Banks Blocking Crypto?
In March 2020, the Supreme Court of India set aside RBI’s circular and quashed the banking ban.
“However, there seems to be a confusion among the banking industry because they are not giving banking access to crypto industry in India despite the SC verdict,” Nischal Shetty, cofounder and CEO of Mumbai-based cryptocurrency exchange WazirX told The Quint.
‘A Welcome Move’
Ashish Singhal, co-founder and CEO, CoinSwitch Kuber, a cryptocurrency exchange told The Quint that RBI’s statement to banks on cryptocurrency investments clears the position on whether customers are legally allowed to invest in crypto.
“Instead of inconveniencing customers basis an invalidated circular, it is time banks came onboard the crypto investment bandwagon, allow the crypto exchanges to hold accounts with them and enable customers to make investments via all possible options, including UPI and bank transfers,” Singhal said.
“We welcome the move from the RBI to clarify the stand around the old circular which was set aside by the honorable Supreme Court. I hope the confusion around the same ends now.”Sumit Gupta, CEO & Co-Founder, CoinDCX