India hasn’t formally banned cryptocurrencies, but the country’s banks appear to be cracking down on crypto and exchanges.
Indian crypto exchanges are struggling to keep fiat coming in as banks are halting transfers to crypto-related accounts, according to members of the local crypto community. Crypto traders also are receiving notifications from banks asking about crypto-related transactions and warning their accounts may be closed, they said.
The situation has likely been prompted by the anti-crypto move by India’s top financial regulator. The country’s central bank, the Reserve Bank of India, has been approaching banks and asking them to sever ties with crypto, according to a Thursday report by Reuters.
The banks have reportedly asked The National Payments Corporation of India (NPCI), a central bank-owned retail payments system, to block crypto-related transactions. However, the agency refused to do it. Despite that refusal, crypto exchanges are having issues with their clients’ banking transfers.
Crypto has been gaining popularity in India recently, especially among the younger generation, which sees cryptocurrencies as a novel investment option, replacing gold that traditionally has been used to store family wealth. However, the country hasn’t come up with a consistent regulatory approach yet and rumors of a possible crypto ban have been hovering around India over the recent months.
Exchanges’ struggle
WazirX, an Indian crypto exchange, has been having issues with transfers from banks for the past two weeks, said founder Nischal Shetty.
“We do have trouble with banks not allowing crypto exchanges with access to banking APIs for receiving customer deposits,” Shetty told CoinDesk.
According to him, the bank WazirX used to work with stopped serving the exchange last week, so WazirX had to quickly find another one. As the change took place, there were no banking services available for a few days over the weekend, he said. Shetty did not disclose which bank stopped working with WazirX.
The rationale behind the banks’ behavior was not clear.
“There’s been no official statement from RBI yet. But I think it’s mostly the banks themselves who are deciding not to provide access to crypto startups in India,” Shetty said, adding, “We are talking to multiple banks now. I’m sure a few forward-looking banks will offer their services.”
Read also: India’s Millennials Embrace Digital Gold Despite Proposed Bitcoin Ban
Vikram Rangala, chief marketing officer at ZebPay exchange, told CoinDesk that ZebPay, too, had briefly dealt with banking issues.
“Our deposits were down for part of one day and we had to turn to manual deposit methods, which are slower. We are switching to other payment channels, so we’re able to adapt, but it is still disruptive,” Rangala said.
He believes the banks might be following the old anti-crypto order that the RBI issued in 2018, which was overturned by the Indian Supreme Court in 2020.
“That Supreme Court ruling is the law of the land and even the RBI has confirmed that crypto is not illegal. We still have some banks citing the 2018 notice, even though it has been ruled unconstitutional,” Rangala said.
Users get a red notice
It is not only crypto businesses that have encountered banking troubles. Naimish Sanghvi, founder of Indian crypto news website Coincrunch, told CoinDesk that Axis bank, where he had his account, sent him a letter saying that his transactions were found to be “inconsistent,” and his account would be closed in 30 days.
“It is not per the normal activity expected as per the information provided by you at the time of account opening,” read the letter, reviewed by CoinDesk.
Last summer, Coincrunch reported that Axis bank made its clients sign obligations not to deal with crypto, especially targeting those who were interacting with WazirX’s account at Karur Vysya Bank.
Another user that contacted this CoinDesk reporter via Telegram said his brother received a letter from HDFC Bank inquiring about his crypto purchases. The user, nicknamed as “Crypto hustler,” refused to share his real name fearing “the wrath of government,” but showed CoinDesk the letter that his brother saw.
“Which are the channels/websites through which you are investing in cryptocurrencies?” the letter said, asking the user to share documents related to crypto transactions “for verification.”
Read also: Indian Crypto Firms Suggest Policy Ideas to Government Ahead of Possible Ban
“But we haven’t shared anything to them,” the user wrote. “We withdrew all money and that bank account is empty. Also not withdrawing to banks nowadays due to this fear.”
Indian YouTube influencer Kashif Raza told CoinDesk there were many people who felt an impact of the new policies by their banks. The exact scope of this, however, is not clear.
Raza tweeted last week that “banks are closing the individual accounts for dealing in crypto but they are not giving it in writing.” According to Raza, payment networks also shut down on crypto businesses as they “have informally told exchanges in advance that they can’t work with them as they fear RBI wrath.”
CoinDesk reached out to Axis and HDFC Bank for comments but had not heard back by press time. We will update this story once we hear from these banks.