India has renewed its push to keep cryptocurrencies outside the regulated financial system. Government documents reviewed by Reuters show the Reserve Bank of India (RBI) still favors a policy approach leaning toward prohibition and does not want banks or other financial institutions to hold, trade, or obtain exposure to digital assets.
The central bank said limiting institutional involvement would help stop crypto from becoming embedded in the country’s banking system. Its concern is financial risk. The RBI also repeated its warning on stablecoins, saying privately issued tokens backed by foreign currencies could weaken India’s monetary sovereignty if they gain wider use.
RBI keeps pressure on institutional crypto exposure
The policy position goes beyond direct ownership of cryptocurrencies. According to the documents, the RBI opposes broader forms of exposure through regulated financial institutions as well. The bank argued that such restrictions are better aligned with financial stability and with limiting systemic risk tied to digital assets.
Its stablecoin concerns were not limited to foreign-currency-backed tokens. Reuters reported that the RBI also said rupee-backed stablecoins could reduce government revenue generated through currency issuance. The documents added that heavy redemptions during market stress could create extra strain for the financial system.
Tax officials say disclosure remains weak
At the same time, India’s tax department outlined major enforcement problems around crypto activity. Officials said many investors have not accurately reported digital asset transactions. The documents showed that of the 645,000 people who carried out cryptocurrency transactions in the financial year ending March 2023, fewer than one quarter disclosed those activities in their income tax returns.
Tax authorities said overseas exchanges and private wallets make it harder to identify beneficial owners. That complicates efforts to verify taxable income and recover unpaid taxes. Rupee-denominated peer-to-peer crypto transfers were flagged as another compliance problem because they often leave limited records and are harder to trace through standard monitoring systems.
Adoption stays large despite policy uncertainty
Even with the regulatory stance still tight, India remains a major crypto market by user participation. Government estimates cited by Reuters showed that by the end of May, nearly 39 million Indian investors held about $2.1 billion worth of digital assets.
That leaves policymakers dealing with two pressures at once. The RBI is trying to keep institutional exposure low and prevent deeper links between crypto and the banking sector, while tax authorities are trying to close reporting gaps in a market that still has tens of millions of participants.