Indian crypto exchanges have suspended rupee deposits for new users on the platform even as they have conveyed to the government that capital markets regulator Securities and Exchange Board of India (Sebi) is better suited to regulate the sector than the Reserve Bank of India, as crypto assets are closer to commodities than to currency.
New users are not able to deposit rupees on their platform as their banking partner is unable to create new virtual accounts, according to a report. The crypto exchanges are working on adding more banking partners to support the rise in rupee deposits, but are worried more banks may impose curbs.
Since early this month, leading banks, notably private sector lenders ICICI Bank and IndusInd Bank, have asked payment gateway partners to stop processing such transactions.
Axis Bank, Kotak Mahindra Bank, Citibank, and others are limiting their exposure to the cryptocurrency market.
Banks, the industry sources said, have stopped issuing merchant IDs to payment gateways, and have asked these intermediaries to tighten scrutiny while dealing with cryptocurrency exchanges in India.
According to reports, the Reserve Bank of India has asked lenders to cut ties with cryptocurrency exchanges and traders as the highly speculative market booms, despite a Supreme Court ruling that banks can work with the industry.
The guidance comes as the Indian government is drafting a law to ban cryptocurrencies and penalise anyone dealing in them, which would be among the most sweeping crackdowns on the new investing fad in the world. But with the COVID-19 crisis engulfing the country, no one is sure when such a bill may be passed, adding to investors` confusion.
The regulator tangle
Advocating for a separate regulator, the exchanges claim that crypto assets, such as Bitcoin and Ethereum, are not currencies and should not be regulated by the RBI. The exchanges have also pitched for a new regulator for cryptocurrencies. Many are also pushing for a hybrid or a new regulator for regulating the crypto assets, saying it could be regulated both by RBI and Sebi.
The exchanges have been pushing to be recognised in one way or another. Currently, no law recognises them in any way, including tax regulations and there is no clarity on taxes applicable under income tax and GST rules.
Cryptocurrency exchanges had also reached out to the government and sought clear regulations for controlling and taxing crypto assets, even suggesting that instead of a complete ban, the government should club them under the highest tax brackets.
Thousands of new users are piling into the system every day at a time when the prices of major digital currencies have been on the rise. There are over 10 million crypto investors in India with total holdings of over Rs 10,000 crore, according to industry estimates. No official data is available.
Crypto platforms, for their part, are in the process of sending a communication to all major banks about the Supreme Court ruling of February 2020 that revoked the banking ban and declared that the central bank cannot issue any formal guidelines or directly regulate these exchanges.