The dichotomy over approach towards cryptocurrency trading in India between the government and banks has caught crypto exchanges and their users in the quagmire. There has been no formal ban on cryptos but some of the leading banks in the country had allegedly severed ties with crypto exchanges at a time when the government hinted towards re-looking at the potential of cryptos and a window to regulate the sector. According to crypto exchanges, multiple banks stopped facilitating bank transfers to crypto accounts last week by halting exchanges’ access to their application programming interfaces (APIs). Paytm Payments Bank followed suit when it stopped supporting crypto transactions, adding to the exchanges’ challenge of finding new banking partners. Here, WazirX, CoinDCX, BuyUcoin, others have been on the receiving end.
“Paytm has been one of our banking partners. We are in active talks with them to seek more clarity on their stance and to work together towards reaching a resolution at the earliest,” Neeraj Khandelwal, CTO & Co-founder, CoinDCX told Financial Express Online. The exchange was exploring other payment channels even as its remittance operations were currently functional via a third-party-based automated route and INR deposits through its other banking partner. The company didn’t disclose its name.
Likewise, BuyUcoin had got Mobikwik’s payment gateway to serve customers with deposits. The company said that Paytm Payments Bank had suspended support to them without giving any “official reason”. “We’re using Mobikwik Payment gateway. Banks have stopped payment gateway from giving their services to crypto companies. There are limits on payment gateway transfer, so people who want to invest more are facing a huge problem. We’re requesting RBI to give clarity to banks so they can allow banking to us,” Shivam Thakral, CEO, BuyUcoin told Financial Express Online.
Paytm Payments Bank didn’t reply to the email seeking comments for this story.
For WazirX, on the other hand, its P2P method was the only available option at this time while the company is in the “finishing stages” of adding new banking partners and bringing in multiple INR deposit options for its users to deposit funds to WazirX wallet. “We’re also working on an upgrade for the WazirX trading engine to accommodate the rapidly growing traffic and volume. It’s called Project Raftaar…the team is in constant conversations with the banks who are still holding on to the old (RBI) circular or don’t have any idea of how this is creating confusion,” Nischal Shetty, Founder and CEO, WazirX had said recently in a company statement following banks’ action. The company didn’t have fresh comments on the matter.
Further, for India’s first business-to-business crypto trading exchange DigitX, which has been lucky so far as it neither worked with Paytm Payments Bank or any of the banks stopping support to crypto exchanges, “peer-to-peer transactions can be facilitated by the exchanges. The crypto-crypto pairs can be traded. The biggest loss is loss of confidence in investors and the opportunity loss for the institutions who put in their money and energy in providing solutions/education/ awareness for this area among investors,” Ashish Mehta, Co-founder DigitX told Financial Express Online.
The latest move to stop or limit support to crypto exchanges by multiple banks including ICICI Bank, HDFC Bank, Kotak Mahindra Bank, etc., was likely triggered by the RBI’s “informal” direction to banks to withdraw support to crypto exchanges and traders, as per a recent Reuters report. In April 2018, RBI had banned banks from supporting crypto transactions after cases of fraud through virtual currencies were reported. However, the Supreme Court had struck down the ban in March 2020. Among the reasons cited was that cryptocurrencies were not illegal though unregulated in India. Nonetheless, the implications of the current move by RBI may affect the ecosystem.
ICICI Bank, HDFC Bank, and Kotak Mahindra Bank didn’t comment for this story. RBI spokesperson couldn’t be reached.
“Ban is at the retail level — where the retail customer is worried that if I send money to crypto exchange my account will be blocked — and at the institutional level where exchanges themselves keep having their accounts blocked. Retail customers have received emails from banks for shutting down their crypto-related accounts. This will hurt new players more because if the bank account gets shut, it is a huge challenge for customers. On the whole, it has created an environment of uncertainty. It is extremely bad to have an industry that doesn’t have bank accounts. Customers cannot trade when they want to. However, crypto being a global phenomenon, this should not have a real impact,” Ajeet Khurana, Venture Partner and Global Expert at Blockchain Founders Fund told Financial Express Online.
This, however, also means that new buyers will not be able to enter the system and it might affect new buying of cryptocurrency. Banks’ decision to disengage with Indian exchanges had coincided with China reportedly banning its financial institutions and payment companies from supporting cryptos. “Maybe we are trying to copy the Chinese but in China, at least there was some official directive unlike in India. The situation here also suggests that crypto price may be affected to some extent as I believe Indians contribute almost 10 per cent of the crypto market globally. Overall liquidity will get affected as new buyers are not entering the ecosystem. This means whom will you sell crypto to. And if there are no new buyers then selling will also be a problem. If this gets over in a week or two, then it is okay,” Atul Chatur, Co-founder, Antilles Cryptocurrency Ecosystem (ACE-X) told Financial Express Online.
While the alleged move by RBI appears in contrast to the government’s likely effort to regulate cryptocurrencies, Governor Shaktikanta Das had earlier maintained that there is no difference of opinion between the central bank and the government over cryptos. “I do not think there is any difference of opinion between the RBI and the Central government on cryptocurrencies,” Das had said at the Times Network’s India Economic Conclave in March this year. Meanwhile, the government had already indicated its intent to regulate cryptos. In what had possibly marked the first move by the government to do so, the Corporate Affairs Ministry had made it mandatory in March for companies dealing with virtual currencies to disclose profit or loss incurred on crypto transactions and the amount of cryptos they hold in their balance sheets.
The government had also said that crypto gains are taxable as income and GST is applicable on services by crypto exchanges. “Irrespective of the nature of business, the total income for taxation shall include all income from whatever source derived…the gains arising from the transfer of cryptocurrencies/assets is liable to tax under a head of income,” Minister of State for Finance Ministry Anurag Singh Thakur had said in response to a question in the Rajya Sabha in March.
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