IDFC First Bank joins ICICI Bank, Yes Bank and others in stopping services to crypto companies, despite RBI’s nudge to ignore its 2018 order
- IDFC First Bank has temporarily halted services to crypto companies as it explores ‘enhanced due diligence.’
- IDFC First Bank isn’t the only one, as ICICI Bank, Yes Bank, and Paytm Payments Bank have taken similar decisions since May.
- Cryptocurrencies were banned by the Reserve Bank of India (RBI) in 2018, but India’s top court overturned the decision in 2020.
- For banks, cryptocurrencies are a concern since they’re often a preferred instrument for money laundering, illegal purchases, and transactions relating to contraband.
A host of Indian banks are reluctant to service the crypto industry and have opted to take matters into their own hands even though there is no official ban in place. The latest institution to reportedly join the bandwagon is IDFC First Bank. It has halted services to crypto companies sometime during the last one week, sources told Livemint.
The report claims that the move is temporary while the bank explores ‘enhanced due diligence’ regarding banking support to crypto exchanges.
IDFC First Bank isn’t the only one to keep its distance from the volatile markets. ICICI Bank, Yes Bank, and Paytm Payments Bank have taken similar decisions since May.
Big wigs HDFC Bank and State Bank of India (SBI) have also cautioned their users against the risks of dealing in unregulated digital currencies like Bitcoin.
Such moves further add to the confusion for customers who are caught in the middle. The banks’ decisions are internal with no transparency or any direct communication that alerts users to the change.
There’s no official ban on cryptocurrencies in India, and the RBI has confirmed it
Last month, the RBI clarified that banks and other regulated entities should not cite its April 2018 order banning banks from engaging with virtual currencies.
The directive no longer holds true as it was set aside by the Supreme Court of India in 2020. Since then, the crypto industry has been entirely unregulated, making it tricky for regulated financial players to decide the end outcome.
For banks, cryptocurrencies are a concern since they’re often a preferred instrument for money laundering, illegal purchases, and transactions relating to contraband. While RBI’s clarification gave relief to crypto investors, banks are caught in the middle as they can neither entirely support crypto nor claim absolute immunity from its future fallouts or issues.
Self-regulation is the only short-term solution for exchanges
As the Indian government mulls over whether or not to bring in new laws to deal with cryptocurrencies,
have agreed to self-regulation under the patronage of the Internet and Mobile Association of India (IAMAI). It includes a code of conduct that will see all crypto exchange members voluntarily complying with KYC, tax and other norms.
Crypto exchanges are also reportedly setting up a second lobby — of which Zebpay is a confirmed member — under the helm of IndiaTech, an industry body representing the country’s leading internet startups like Ola, MakeMyTrip, Nykaa, Dream11, and more.
With a formal setup, the board and exchanges will develop protocols to accommodate regular audits and inspections, customer redressal mechanism, and fraud protection. The collective effort, they claim, will also help crypto exchanges keep an eye out for money laundering, illegal transactions, and more.
It’s estimated that India has 15 million crypto investors with ₹10,000 crore worth of digital assets. For an industry that has zero regulations, that’s a lot of money at stake.
Even though cryptocurrencies are a concern, the underlying technology of blockchain is being welcomed. Recently, 15 private and state-run banks teamed up in India to form a new group called Indian Banks’ Blockchain Infrastructure Company Private Limited (IBBIC). Initially, they plan to process Letters of Credit (LCs), GST invoices, and e-way bills via blockchain to help speed up the existing system.
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