The Reserve Bank of India has been directed by the Supreme Court to answer why it chose to restrict banking access to crypto firms in India.
Indian crypto story
The Reserve Bank of India (RBI) has never been supportive of digital currencies in India. The central bank issued warnings about digital coins way back in 2013, suggesting that trading, using or holding virtual coins is not legal in India. In the next three years, cryptocurrencies started becoming more popular in India, and by 2017, investors were actively participating in different crypto exchanges in the country, owing to the rising prices of digital coins. In 2017, the RBI issued two fresh warnings to the users.
By early 2018, the Bitcoin mania had reached its peak and subsided, leading to some heavy losses for investors. Then in April 2018, the RBI made a surprise announcement that all banking entities in India should stop providing banking services to digital currency companies. It gave them a three-month time frame to sever all existing relationships with such companies. The government of India also repeatedly noted that Bitcoin is not legal tender in India and is not authorized by relevant authorities to trade freely in the country.
The Internet and Mobile Association of India, representing several digital currency exchanges, moved to court but the matter has been sub-judice since then.
What does the Supreme Court want?
The Supreme Court has given the RBI two weeks to reply to questions posed by the IAMAI. The solicitor general has also been given a week’s time to furnish relevant documents related to the response. Justice Rohinton Fali Nariman has scheduled the next hearing in the case for September 25.
RBI was represented by senior advocate Shyam Divan who said that the April 2018 circular was sent in accordance with the statutory provisions of the Banking Regulation Act. He added that the RBI could exercise its powers “whenever there is a threat to the monetary, fiscal and financial policy.”
On the other hand, IAMAI counsel advocate Ashim Sood said that crypto companies might follow the anti-money laundering (AML) and know-your-customer (KYC) guidelines to address the regulator’s concerns. The exchanges want the Money Laundering Act to be made applicable to their entities which could make them intermediaries.
While some are fighting the legal battle with RBI, a few popular exchanges like Zebpay and Koinex have already shut down owing to the problems they faced because of the banking ban.