Some Indian Banks Ignore Supreme Court Verdict on Cryptocurrency, RBI Urged to Rectify
Despite the Indian supreme court quashing the central bank’s ban on crypto, some major banks, including HDFC and Indusind Bank, are still arbitrarily declining to process crypto transactions. Banks say they are waiting for instructions to lift the ban from the Reserve Bank of India (RBI).
Some Major Banks Still Decline Crypto Transactions
The Indian cryptocurrency community’s dispute with the central bank, the Reserve Bank of India (RBI), over the banking ban continues. Even though on March 4, the Indian Supreme Court squashed the RBI’s circular, some banks are still refusing to reopen accounts for crypto businesses.
In an attempt to rectify the situation, Mohammed Danish of Indian law firm Fintech Lawyers sent a letter to Finance Secretary Ajay Bhushan Pandey and two RBI officers regarding this “arbitrary denial of banking services by certain banks for sale/purchase of crypto assets.” Emphasizing the supreme court order, he wrote:
Few instances have come light which clearly suggest that bank(s), including HDFC and Indusind Bank, are still arbitrarily declining to process the transactions for sale/purchase of crypto assets.
“In most of the cases, the banks have not given any written communication but verbally informed their customers that they are waiting for RBI notification in this regard,” the lawyer continued. HDFC is India’s largest bank by market capitalization as of March and is the country’s largest private sector lender by assets. Indusind Bank was formally inaugurated in April 1994 by Dr. Manmohan Singh, the then finance minister of India.
The RBI issued a circular in April 2018 banning regulated financial institutions from providing services to crypto businesses. The ban went into effect three months later and several crypto stakeholders immediately filed writ petitions challenging the ban. After about two years, the supreme court finally ruled that the circular was unconstitutional.
Lawyer Says Banks’ Refusal Is Illegal and Unjust
“Now when the said circular doesn’t exist anymore, the banks (RBI regulated entities) must comply with the order of the supreme court and start providing banking services for sale/purchase of crypto assets impartially as they provide services for all other legitimate transactions,” Danish wrote. “It is pertinent to mention that the order of the Hon’ble Supreme Court has given no specific direction to RBI for issuing a separate notification to the banks for compliance of the said order.” He asserted:
Banks’ refusal to provide services for sale/purchase of crypto assets is absolutely illegal, unjust and arbitrary in the eyes of law and the same amounts to wilful disobedience to the order of the Hon’ble Supreme Court.
“In view of the above, we request you to issue official communication to all the banks as soon as possible with regard to the matter under discussion,” he concluded.
Banks Waiting for RBI’s Instructions
The Economic Times interviewed some bankers on the crypto banking ban issue. Some told the publication that “Lenders would open their channels for cryptocurrency trade only on explicit regulatory orders from either the central bank or the parliament, as the legality of such trades is yet not clearly defined in India.” An unnamed senior banker was quoted as saying:
We will be guided by RBI’s directions on the matter and once we get clarity we will act appropriately. As banks, some of the concerns we had on cryptocurrencies were around security, use of money and traceability.
Sathvik Vishwanath, CEO of local crypto exchange Unocoin, explained: “I don’t think RBI is instructing the banks to support the crypto industry. They are not obligated to do so as per the supreme court verdict.” Another bank executive noted that “The banking system including the regulators are yet to come up with a sound supervisory mechanism to govern cryptocurrencies.”
The Indian government has been deliberating on the “Banning of Cryptocurrency and Regulation of Official Digital Currency Bill 2019” since February last year. The bill seeks to ban all cryptocurrencies except state-issued ones. It was drafted by an interministerial committee (IMC) headed by former Finance Secretary Subhash Chandra Garg who has since resigned from his position in government. This bill was supposed to be introduced in parliament in the winter session of last year but it was not.
The central bank is not happy with the supreme court verdict quashing its circular on cryptocurrency and is reportedly planning to file a review petition on the grounds that the anonymous nature of crypto transactions poses a systemic risk to India’s banking system. The RBI has 30 days to file this petition. Meanwhile, it was reiterated in court that cryptocurrencies, such as bitcoin, are not banned in India.
Do you think banks should wait for the RBI to instruct them to lift the ban or start servicing crypto businesses based on the supreme court verdict? Let us know in the comments section below.
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