While large banks like SBI, HDFC Bank, Axis Bank and ICICI Bank continue to be reluctant, some smaller banks such as IDFC Bank had started offering their services to some exchanges, say people in the know.
Now even the smaller players seem to be pulling back.
IDFC in the last one week reached out to some exchanges and said that they are “temporarily deactivating accounts.”
No reason was extended by the bank.
“We have experienced with most of the banks that despite clarity from the highest regulatory body, RBI, banks are still not restoring the services to crypto exchanges. Most of the banks are on the same trajectory as they were before the May 31 circular from the RBI,” said Shivam Thakral, CEO, BuyUcoin, a cryptocurrency exchange.
IDFC halted the banking services it was extending to the exchange.
Currently, there are close to 1.5 crore crypto investors in India holding digital assets worth Rs 15,000 crore.
IDFC, HDFC, ICICI, SBI and Axis bank did not respond to an ET query.
The trouble started in 2018, when the RBI issued a circular asking banks and financial institutions to refrain from offering services to Cryptocurrency exchanges.
In 2020, the Supreme Court quashed the RBI circular paving way for several exchanges to restart operations in India again.
Trouble again started brewing this year when RBI through an “informal” diktat had asked banks to stop dealing with cryptocurrency exchanges.
Many banks in May started sending mails to their customers citing the 2018 RBI circular on cryptocurrency.
Many exchanges bandied together and were looking to drag the central bank to SC.
On May 31 however, RBI came out with another circular, asking banks not to refer to the 2018 circular.
This, claim exchanges, was a green signal for banks to restart offering services to them.
“Few of the banks, mainly frontline banks have taken stringent action and blocked the banking services to Crypto exchanges. They are very reluctant to extend the services to crypto exchanges in absence of any regulatory framework. This is primarily to safeguard their own interests and we feel as soon as an outline of regulations is made available to them, they shall resume services,” said Ashish Mehta, co-founder DigitX, a cryptocurrency exchange.
ET had first written on June 2 that top banks were hesitant to deal with the exchanges.
Many Cryptocurrency exchanges were expecting that the latest RBI directive would help in lifting the payment restrictions.
Many exchanges have now again reached out to their legal advisors and could initiate legal action, say insiders.
“We are continuously monitoring and assessing the entire development related to banking services. We are internally discussing and taking advice from our legal and compliance teams for all the necessary steps which need to be taken as and when required,” said Mehta.
“Even after the circular, the banks are still at their discretion based on the feedback from their legal and compliance team to decide on whether they can give account or not to the crypto currency exchanges. As the industry continues to be unregulated, many banks as well are not able to take a clear stance on how to deal with the situation. On the other hand, given there are numerous banks supporting the crypto exchanges, presently this has not turned out to be a challenge for Unocoin,” said Sathvik Vishwanath, co-founder, Unocoin, a cryptocurrency exchange.