According to the National Payments Corporation of India (NPCI), the Unified Payments Gateway (UPI) is being used to transact in virtual digital assets (VDAs). Indian banks are complaining that they have been directed not to allow UPI for trading of cryptos, yet there are no official rules governing this.
The Royal Bank of India (RBI) stance on crypto continues to throw up much confusion on whether banks should be dealing with these assets or not. Given the amount of influence the RBI wields, many banks will follow the negative lead that it provides despite the legalities that exist.
Indian banks recently asked for clarification from the NPCI during a shareholders meeting. Some of the banks themselves are shareholders of the NPCI and want the organisation to detail any prohibited uses of UPI.
According to an article in the Indian Economic Times, senior bankers and members of the crypto community believe that the NPCI’s reluctance to clarify its position is due to the legal complications this would no doubt throw up. A banker said:
“If there is a formal circular to ban UPI for cryptos or VDAs, whatever is the nomenclature, the crypto industry in all likelihood would legally contest it --- as they had done when RBI imposed a ban in April 2018,”
The April 2018 ban, which came in the form of a RBI circular that prohibited banks from allowing customers to use their accounts to pay or receive funds from cryptocurrencies, was overturned by the supreme court.
Banks are now wondering why the informal RBI restriction on UPI crypto trades has not been vocalised when it comes to IMPS (immediate payment service). The same banker voiced their suspicions:
“So, one may wonder whether IMPS can be used to transfer money to a crypto platform? We have no clarity, though I have a more fundamental question: Is NPCI authorised to impose an informal ban on UPI when the payment framework is governed by the Reserve Bank of India (RBI),”
The RBI has made its negative position on cryptocurrencies known in the country, as speeches from its governor and other high ranking officials have testified.
With a central bank digital rupee forecast to be rolled out by 2023, the RBI has made its position very clear. It does not want cryptocurrencies to be widely accepted. However, should the Indian crypto industry contest the ‘shadow ban’ imposed by the RBI, then the central bank may be forced to tolerate them.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice