India’s central bank has renewed its call to keep banks and financial institutions entirely clear of crypto assets and privately issued stablecoins, Reuters originally reported, citing government documents that show the Reserve Bank of India (RBI) still favors a policy leaning toward prohibition.
The stance, drawn from internal papers dated May and June, lands alongside a warning from the tax department that offshore trading is eroding its ability to trace and tax digital-asset gains, and it marks a firmer line than the limited regulatory clarity the finance ministry backed last September. India counts nearly 39 million crypto traders holding about $2.1 billion at the end of May, yet the country has never passed a law to ban or govern the asset class.
Crypto has occupied a legal grey zone in India since a 2018 court ruling struck down RBI banking restrictions, and a 2021 bill to outlaw private tokens never reached Parliament while the promised discussion paper slipped repeatedly.
RBI Wants Lenders and Stablecoins Walled Off
The RBI recommends barring banks and financial institutions from holding, trading, or taking exposure to crypto and privately issued stablecoins, pointing to contagion risk as its core concern. Indian lenders already keep their distance after years of central bank warnings, though no formal prohibition binds them yet. Its officials pressed the same case before a parliamentary panel, urging lawmakers to keep regulated entities insulated with a full ban held in reserve. The position keeps the RBI at odds with Securities and Exchange Board of India (SEBI), which has signaled it could oversee tokens that behave like securities.
Stablecoins draw a two-sided objection. Foreign-currency tokens threaten monetary sovereignty, and rupee-pegged versions could erode the seigniorage the government earns from issuing its own currency while adding stress during market turbulence. Wider stablecoin use would also let holders avoid converting into fiat, the step that exposes gains to India’s 30% tax.
Offshore Trades Slip Past the Tax Net
The tax department backed the tightening with evidence of thin compliance, having earlier joined the RBI in branding virtual digital assets high-risk before the same committee. Fewer than a quarter of the 645,000 people who traded crypto in the year through March 2023 declared it on their returns. Overseas exchanges and private wallets obscure beneficial ownership and block recovery of what is owed, while rupee-denominated peer-to-peer trades leave assessors with little to follow.
Enforcement has caught up with those warnings, with the Enforcement Directorate raiding five payment firms in Bengaluru over an alleged $265 million in unauthorized cross-border transfers. Price volatility and the absence of a common valuation standard further complicate assessment, and the Ministry of Corporate Affairs is now examining accounting rules for virtual digital assets. Global exchanges such as Binance and Coinbase can still serve Indian users after registering with the relevant agency.