At a recent meeting, several banks urged the National Payments Corporation of India (NPCI) to issue a formal note on the use of the government backed Unified Payments Interface (UPI) for buying and selling cryptocurrency, according to an Economic Times report.
Several cryptocurrency trading platforms stopped offering UPI as a payment option for Indian users as banks and e-wallets stopped support, days after the NPCI issued a statement saying that it is "not aware of any crypto exchange using UPI".
Banks also received “verbal instructions” from NPCI, according to the report, but no formal statements expressly banning the use of UPI for crypto transactions were issued.
Legal Complications
Such an announcement is unlikely in the near future as NPCI has 'no intentions' of issuing such a circular an official told the publication.
This is possibly because of the legal pushback that an official ban could lead to. With a 'shadow ban' like this, the NPCI doesn't have to worry about that.
“If there is a formal circular to ban UPI for cryptos or VDAs, whatever is the nomenclature, the crypto industry in all likelihood would legally contest it – as they had done when RBI imposed a ban in April 2018,” a banker told ET.
Banks also reportedly want clarity on the Immediate Payment Service (IMPS) – another popular real-time mode of payment managed by the NPCI.
This payment service was not mentioned in NPCI's circular, although some crypto exchanges still had to stop offering it as a mode of payment.
“We have no clarity (on IMPS), though I have a more fundamental question: Is NPCI authorised to impose an informal ban on UPI when the payment framework is governed by the Reserve Bank of India (RBI)?” another banker said to the publication.
The RBI doesn't have a favourable view of virtual currencies.
In February this year, after announcing the monetary policy rates, RBI Governor Shaktikanta Das said that cryptocurrencies are a big threat to the financial and macroeconomic stability of India.
Shortly after, Deputy Governor T Rabi Sankar recommended a cryptocurrency ban, calling them akin to Ponzi Schemes.
The UPI 'shadow ban' could take a heavy toll on the industry, which is already struggling under the new tax regime. Trading volumes have dropped and marketplaces have resorted to peer-to-peer trading and direct transfers.
(With inputs from The Economic Times)
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