The Reserve Bank of India has told lawmakers that banks and other regulated financial institutions should be kept away from cryptocurrencies and privately issued stablecoins. In a background note submitted to the Parliamentary Standing Committee on Finance, the RBI backed a containment approach that would stop banks and regulated entities from dealing in crypto while also blocking the use of such assets in payments and settlements. An outright prohibition was not dismissed. The central bank said a ban remains a recognized policy option under international frameworks.
RBI’s proposal centers on insulating the formal financial system
According to The Economic Times, Deputy Governor Rohit Jain and Executive Director P. Vasudevan presented the central bank’s position to the committee on Thursday. The message was narrow but forceful: keep the formal financial system ring-fenced from crypto exposure. Under that approach, trading by individuals could remain legal, but regulated lenders would be kept from direct or indirect involvement. At the same time, enforcement agencies would move against payment rails built on stablecoins.
The RBI’s case rests on supervision and enforcement risks. It told the panel that crypto can be used in illegal activity, including terror financing and drug trafficking, and argued that offshore entities holding or facilitating these assets are difficult for domestic authorities to oversee. That gap, in the central bank’s view, makes containment more practical than a licensing framework.
Central bank warns regulation could legitimize speculative assets
The RBI also argued that applying conventional financial regulation to crypto could create a false sense of safety for users by making speculative assets appear officially validated. That puts the central bank at odds with the Securities and Exchange Board of India, or SEBI, which has indicated some openness to supervising crypto products that resemble securities. RBI officials urged policymakers to separate crypto assets from tokenized instruments that already fall within existing regulation.
Review of virtual digital assets moves toward a committee report
To support its position, the RBI pointed to different international models, noting that China and Qatar have imposed outright bans while some European jurisdictions allow crypto only under strict conditions. It also challenged claims that India is one of the world’s largest crypto markets, saying the methodology behind such estimates may overstate adoption in highly populous countries.
The submission is part of a broader review of virtual digital assets by the Parliamentary Standing Committee on Finance, which has already held several rounds of consultations with regulators, industry representatives, and government departments. The Income Tax Department, in its own submission, described the asset class as high-risk. During the same discussions, the Institute of Chartered Accountants of India supported a comprehensive legal framework, while committee chairman Bhartruhari Mahtab said afterward that the RBI remains opposed to legalizing virtual digital assets. The panel is preparing a report titled “A Study on Virtual Digital Assets (VDAs) and Way Forward” for the upcoming monsoon session. For now, banking isolation is emerging as a central pillar of India’s crypto policy, alongside the existing 30% tax on gains and the 1% transaction levy applied to digital asset trading.