Cryptocurrency exchanges and investors are facing a new challenge with most banks unwilling to process such transactions.
According to sources, the issue had started cropping up in late February and in recent weeks some banks have directed payment gateways not to process cryptocurrency-related transactions.
Advertisements by cryptocurrency exchanges during the Indian Premier League as well as booming trading volumes are understood to be the cause of concern even though the Supreme Court had lifted the ban on them in March 2020.
Over the last few weeks, some cryptocurrency exchanges have been facing problems in processing transactions even as many investors complained that they were unable to invest though cryptocurrency prices were on the rise.
“Most banks are not working with cryptocurrency exchanges and investors because the Reserve Bank of India had informally indicated that they should not to work with them,” said a person familiar with the development.
An e-mail query to the RBI by BusinessLine on the issue did not elicit any response.
“There seems to be confusion among the banking industry because they are not giving banking access to the crypto industry in India despite the Supreme Court verdict. We request banks in India to update their compliance teams about the Supreme Court ruling that set aside the RBI circular against crypto,” said Nischal Shetty, CEO and Founder, WazirX, noting that NPCI has refused to block fund movement for crypto trades.
WazirX has, however, removed the UPI option because banks are not providing UPI to crypto exchanges, Shetty said.However, not all exchanges seem to be impacted.
According to Sathvik Vishwanath, co-founder of cryptocurrency exchange Unocoin, the problem has arisen because some banks have decided not to permit their payment gateways to process these transactions.
“There were always some banks, which never processed cryptocurrency-related transactions. Some banks have changed their stance now, which is creating the problem,” he said, adding that Unocoin has not faced any such problem.
Ashish Mehta, co-founder, Digital Techlab Private Limited (DigitX), said his exchange has not faced any banking issues but said such issues scare away investors from an alternative asset class that crypto.
“This is a bank-related issue due to lack of understanding and could be at an entity level or a momentary pause as they try to bring in regulations for more transparency for KYC or anti-money laundering,” Mehta said.
Sources in cryptocurrency exchanges, as well as banks, point out that there continues to be regulatory uncertainty, which is causing most of the problem.
“While the Supreme Court has lifted the ban a long time ago, but the Finance Ministry and the Reserve Bank of India have not been in favour of private cryptocurrencies. This has been leading to a lot of confusion even though the trading volumes and investor interest has been picking up,” said a player.
Even prior to this, most lenders had been wary of processing cryptocurrency-related transactions.