India Bans Banks, Financial Institutions from Dealing With VCs including Bitcoin

On Thursday, the bank regulator had released a statement directing all regulated entities, including banks, e-wallets, and payment gateway providers, to stop dealing with individuals and businesses in the partially banned cryptocurrencies.

Explaining its rationale behind the central digital currency, RBI said technological innovations, including virtual currencies, have the potential to improve the efficiency and inclusiveness of the financial system.

The banks will need to achieve 50% provision cover for those loans by end-June, said the bankers and the letter.

The RBI has repeatedly cautioned users, holders and traders of digital currency, and even gone to the extent of calling bitcoins a ponzi scheme. Even launched in 2012, it is now gaining limelight for not so right reasons as desi crypto coins are considered a little dubious, said professor Pradeeptha Sethi, a former banker and expert in financial market infrastructure.

"In an attempt to save Indian entities from the volatility of cryptocurrency, RBI asked banks to s" top having a business relationship with the entities dealing with virtual currencies forthwith and unwind the existing relationship within three months".

Consequently, operating a cryptocurrency business has gotten tough as it was reported back in January that the Ministry of Corporate Affairs has stopped registering any cryptocurrency exchange.

RBI's move to clamp down on the crypto-currencies comes two months after Finance Minister Arun Jaitely in his Budget speech said digital currencies can not be recognised as a legal tender.

Essentially, India bans Bitcoin and cryptocurrency traders from depositing or withdrawing fiat currency at crypto exchanges.

The RBI on Thursday mandated all payment system operators to store data within the country by September. Regulatory bodies in countries like China, South Korea and Canada have, during the past year-and-a-half, imposed a partial or complete ban on cryptocurrencies.

The Bank has previously issued warnings on cryptocurrencies, the first of which was published in 2013.

"Several central banks are debating the possibility of introducing a fiat digital currency".

Bitcoin and other cryptocurrencies are not legal tender in India.

In an effort to reduce corruption, Indian authorities in 2016 said they would withdraw all 500 and 1000 rupee banknotes from use-rendering some 85% of all currency in circulation worthless overnight, unless deposited at a bank.

  • Tracy Klein