The Indian Banking Act is slow to embrace the crypto-currency industry despite the approval of the RBI

The repeal of a general ban on crypto-currency in March by the central bank of India, the Reserve Bank of India, has been a great help to India’s burgeoning crypto-currency industry, and the launch of new exchanges has been a catalyst.

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This despite the fact that the country is one of the nations most severely affected by the COVID-19 pandemic, which has led to a deep economic crisis across the nation. For Fintech’s investors and innovators alike, crypto coin and block chain technology has proven to be a much-needed respite in these difficult times.

Regulatory Uncertainty

The repeal of the total ban was not the final solution that most people had hoped for, as even after the repeal, there have been incidents of banks refusing to process transactions involving cryptomonies. However, there is more regulatory clarity in the sector now than in 2017, when the degree of scepticism and confusion was very high.

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A rumor of a note that was moved within the Ministry of Finance for an intra-departmental consultation on a bill seeking to ban all cryptomoney-related activity, with a heavy fine or even a prison sentence of up to 10 years for violators, has been going around, but has recently been discredited. The business consultancy firm AKM Global said that if the law is passed in its current form, it would „completely decimate cryptology industry in India“. This rumour brought back fears in the crypto community. However, Nischal Shetty, the CEO of the WazirX cryptogram exchange, kept faith with the government, telling Cointelegraph in an email exchange:

„The day the news of the ’note‘ broke, it created some panic in the community. But that is all. We don’t see any difference in WazirX’s commercial behavior since then. There has also been speculation about the banning of crypto currencies in the past. With over 5 million crypto users in India, I’m sure our Prime Minister won’t let us down.

This positive outlook on governing bodies is not shared by all industry experts. Siddharth Sogani, the founder of Crebaco, a research, qualification and intelligence company for the block chain, fears the inadequate dissemination of knowledge in the governing bodies and insists on the need for a separate committee:

„Our government published the bill on cryptomonies that was made by interns from the National Institute of Financial Policy and Planning, without consulting even an expert in the industry or the subject. There are several aspects to be taken into consideration when making policy in India. …] There should be a dedicated government body to regulate this industry, without which it is impossible to regulate cryptomoney in India.

The reluctance of the banks

In addition to the RBI, some private banks have been reluctant to process crypto-related transactions for various companies in the industry. However, there is widespread speculation as to why this is so; it could simply be a lack of understanding and knowledge of the industry, as seen with the governing bodies. However, there could be a deeper conflict of interest at play. Sogani said: „The banks will always be against this industry globally because if crypto gets into action, P2P transactions will eliminate the need for third party bankers.

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On a more positive note, banks‘ scepticism may also be a function of the limiting circumstances to which they are subject due to the lack of regulatory clarity maintained by governing bodies such as the RBI, according to Sogani:

„The banks in India are not clear on how to deal with Bitcoin’s transactions. They clearly do not want to get their hands dirty when there are no Cryptosoft cryptography regulations. Also, the RBI has not withdrawn or issued a new circular telling banks to start working with crypto companies again.