India’s central bank has renewed its push to keep banks and financial institutions entirely away from crypto assets and privately issued stablecoins. Reuters, citing government documents, reported that internal papers dated May and June show the Reserve Bank of India still favoring a hard line that would stop regulated entities from holding, trading, or taking exposure to these assets.
The position is stricter than the limited regulatory clarity supported by the finance ministry in September last year. India had roughly 39 million crypto traders holding about $2.1 billion at the end of May, yet the country still has no law that formally bans or comprehensively governs the sector. Crypto remains in a legal grey area. A 2018 court ruling struck down earlier RBI banking restrictions, while a 2021 bill aimed at banning private tokens never reached Parliament, and a promised discussion paper was delayed repeatedly.
RBI wants regulated entities fully insulated
The RBI’s recommendation is clear: banks and financial institutions should be barred from holding, trading, or otherwise taking exposure to crypto assets and private stablecoins, with contagion risk cited as the main concern. Indian lenders have already kept their distance after years of warnings from the central bank, but no formal prohibition is in force at this point. RBI officials also repeated the case before a parliamentary panel, asking lawmakers to shield regulated entities while keeping a full ban available if needed.
That stance keeps the central bank at odds with the Securities and Exchange Board of India. SEBI has indicated that tokens behaving like securities could fall under its supervision. The split is significant. One side is arguing for separation from the banking system, while the other has left room for asset-by-asset oversight.
Stablecoins face pressure from two directions
Stablecoins are a major flashpoint in the debate. According to the documents, foreign-currency stablecoins raise concerns over monetary sovereignty. Rupee-linked versions, in the RBI’s view, could weaken the seigniorage the government earns from issuing currency and add stress during market turbulence. The papers also say broader stablecoin use would let holders avoid converting into fiat, the step that exposes gains to India’s 30% tax.
Tax officials say offshore activity is hard to trace
India’s tax department backed tighter controls with evidence of weak compliance. In the year through March 2023, fewer than a quarter of the 645,000 people who traded crypto reported it on their tax returns. The department had already joined the RBI in describing virtual digital assets as high-risk before the same committee.
Officials said offshore exchanges and private wallets make beneficial ownership difficult to identify and make tax recovery harder. Rupee-denominated peer-to-peer trading leaves little for assessors to follow. Enforcement action has already followed those concerns: the Enforcement Directorate raided five payment firms in Bengaluru over alleged unauthorized cross-border transfers worth about $265 million. Price volatility and the lack of a common valuation standard add another layer of difficulty, and the Ministry of Corporate Affairs is now reviewing accounting rules for virtual digital assets. At the same time, global exchanges including Binance and Coinbase can still serve Indian users after registering with the relevant agency.