The National Payments Corporation of India (NPCI), an umbrella body for retail payments, has refused to block fund movements for crypto trades and has left it to each bank’s risk and compliance team to take the call. This at a time when banks are blocking some transactions related to cryptocurrency exchanges and investments.
“If NPCI had taken a central decision to disable UPI and RuPay cards for investing in cryptos, it would have applied to all banks uniformly and left investors with fewer payment options. Customers of banks which have disabled crypto cannot anyway use facilities like UPI, net banking, or cards. However, trades continue to happen as many banks are still allowing. It’s unclear how long they will continue to,” an industry official told ET, which first reported the development.
Crypto Confusion In India
NPCI’s stance is significant since some Indian banks have instructed payment gateway operators to shut off the bank’s net banking facilities to merchants buying or selling cryptocurrencies.
Nischal Shetty, cofounder and CEO at Mumbai-based crypto exchange WazirX, also spoke about the development recently. “Confusion in India’s banking industry is hurting 1.5 CRORE Indians in Crypto. The Honourable Supreme Court of India has set aside the RBI crypto circular of 2018. Banks in India still cite that circular to deny banking,” he wrote on Twitter on May 4.
Shetty was referring to RBI’s 2018 decision to bar banks from providing services to crypto companies. In March 2020, the Supreme Court struck down that RBI decision as ‘unconstitutional’. However, reports suggest that banks are still wary of providing financial services to crypto exchanges.
“I request banks in India to update their compliance teams about the Supreme Court ruling that set aside the RBI circular against Crypto. It’s not fair that the crypto industry has a clear go-ahead from the Supreme Court of India and yet banks deny banking to the industry,” Shetty added on Twitter.
One potential reason why banks are discontinuing their services to crypto companies could be increased investment activity in the crypto market due to the rapid rise in the price of Bitcoin and other cryptocurrencies such as Ether and Dogecoin. Several investors are being drawn towards crypto because of promises of high returns. A bank’s risk and compliance team could flag these transactions to protect their customers’ money and suggest suspending partnerships with crypto companies.
Banks discontinuing the movement of funds for crypto trades could cause trouble for investors looking to sell off their crypto assets and transfer the amount earned in fiat currency to their bank accounts.