The government recently said that it plans to introduce a law banning trade in all cryptocurrencies — except for those issued by the government itself.
Top private and foreign lenders including HDFC Bank, HSBC, Citibank, ICICI Bank and Axis Bank have started questioning their customers on crypto related transactions.
In email communication to customers which ET has seen, some banks have asked customers to clarify crypto related transactions failing which they will be forced to take action.
“We have observed probable virtual currency transactions reflected in your account, kindly clarify the nature of these transactions by visiting the nearest branch within 30 days,” a communication by HDFC Bank to a customer states. “In case we do not hear from you, the bank will be constrained to restrict transactions in your account without any further reference to you.”
Most banks had either directly allowed or looked the other way when consumers started investing on Indian crypto exchanges following a Supreme Court order.
But, since the ministry of finance clarified its stance on an imminent crypto ban, lenders have been on an overdrive in sending such notices.
HDFC Bank, HSBC, Citi, ICICI Bank and Axis Bank did not respond to an ET query.
Banks are relying on an April 2018 circular by the Reserve Bank of India (RBI) in which the regulator had asked banks to walk away from allowing customers from using banking channels and platforms for buying, selling or trading cryptocurrency.
While most banks restarted dealing with cryptocurrency exchanges after the Supreme Court quashed the RBI order in 2020, they have relied on the same regulatory guidelines while communicating to the customers.
“To comply with the regulatory guidelines, banks are advised to exercise due diligence by closely examining the transactions carried out in the account on an ongoing basis to caution users, holders and traders of virtual currencies including Bitcoins regarding risks,” a lender communication to a customer states. “RBI has also highlighted that regulated entities shall not deal in virtual currencies and they have to exit relationships with such customers.”
Companies dealing in virtual currencies feel that while banks have the right to question customers on dubious transactions they don’t have the right to block crypto related transactions after the Supreme Court ruling lifted the ban.
“The confusion has arisen because after the apex court lifted the ban, the RBI did not come with fresh guidelines for banks to deal with virtual currencies,” said Sidharth Sogani, CEO of Crebaco Global, a cryptocurrency research firm. “The issue is in these notices banks are relying on the same RBI circular that is already quashed by a Supreme Court ruling.”
In 2018, the Indian government and the Reserve Bank of India have issued several warnings against dealing in cryptocurrencies including Bitcoins, the former even comparing it with a Ponzi scheme.
RBI had warned users of virtual currencies including Bitcoins regarding the potential economic and financial risk associated with cryptocurrencies and stated that it had not given any license to any company to operate or deal with Bitcoin or any other virtual currency.
It then went on to ban access to the banking system to such sort of currencies.
Top banks had also suspended current accounts of some of the top cryptocurrency platforms following the RBI guidelines. In March last year, the Supreme Court quashed RBI’s circular paving way for Cryptocurrency exchanges to restart their operations.
ET had on Feb 13 written how the exchanges could face issues from the indirect tax department over applicability of Goods and Services Tax. The investors on the other hand may have to cough up 42 per cent tax on their returns from Cryptocurrency investments.