Banks warn their customers of curbs if they deal in crypto – The Economic Times

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Synopsis–Several other banks, including ICICI Bank, Yes Bank and IndusInd Bank, have also in recent weeks pulled the plug on the business accounts of crypto exchanges, instructed payment gateways to not work with exchanges and blocked exchanges’ ability to accept rupee deposits.

Leading Indian banks are clamping down on customers using bank accounts for cryptocurrency transactions.

Over the past few months, HDFC Bank and State Bank of India – to name two such lenders – have sent official notices to many customers warning them of curbs – including permanent closure of accounts.

“Kindly clarify the nature of these transactions…within 30 days,” according to one such communication from HDFC Bank.

A letter from SBI Card said: “Please note, usage of credit card for transactions of virtual currency…will lead to suspension/cancellation of SBI Card.”

ET has seen copies of these letters.

Both these lenders have cited the Reserve Bank of India’s past public notifications – including the now-scrapped November 2018 circular that banned banking entities from dealing or facilitating crypto transactions.

This circular was struck down by the Supreme Court in February 2020 after a petition by Internet and Mobile Association of India (IAMAI) and crypto exchanges against the RBI move.

Several other banks, including ICICI Bank, Yes Bank and IndusInd Bank, have also in recent weeks pulled the plug on the business accounts of crypto exchanges, instructed payment gateways to not work with exchanges and blocked exchanges’ ability to accept rupee deposits.

According to sources in the banking industry, in the absence of any explicit order by the RBI, lenders are opting to tread on the side of caution.

“It is true that trading in cryptocurrency is not illegal as per existing Indian laws, but individual institutions can enforce their terms based on their risk assessment,” said a senior banker. “On sensitive matters, we look for guidance from the RBI. The regulator has nowhere permitted us to allow such transactions.”

Cryptocurrency exchanges and lawyers told ET that the decision of banks to impose curbs on customers over the now-invalid circular, could be construed as contempt of court.

RBI, HDFC Bank, and SBI did not respond to ET’s queries till press time Sunday.

“While this is not the norm, regulatory flux and the SC decision kind of have put the banks in a difficult position. While the original judgment applies to RBI and not the banks, it is, as their regulator, morally obligated to intervene,” said Salman Waris, managing partner at TechLegis Advocates & Solicitors, referring to banks ignoring the SC ruling.

“Ideally, banks cannot technically quote the 2018 regulation to issue these notices to customers as banking is an essential service that should not be denied to anyone but for a good and proportionate reason. In case of such a notification, exchanges and customers can actually approach the court to intervene and issue interim orders against such unilateral initiatives by the banks or even RBI till a formal law is passed banning crypto currencies,” said Waris.

Informal instructions
Several industry sources said the informal instructions by the central bank to execute a blanket ban despite the apex court ruling is uncommon.

“While other market regulators routinely warn customers/intermediaries (Sebi, Irda), another notice by the RBI informally to banks instructing them on the blanket ban on use of cryptocurrency is unheard of,” said Atul Pandey, Partner, Khaitan & Co.

ET reported earlier that RBI was issuing “informal restrictions” on cryptocurrency trading after concerns surfaced around money laundering at Indian crypto exchanges.

Pandey added that the Supreme Court in its 2020 judgement had held that the RBI had a responsibility to safeguard the “public interest, interests of depositors and interests of the banking policy”.

“In the event RBI has overwhelming evidence of cryptocurrency posing an immediate threat to the banking system, they have the authority to issue a fresh circular banning banks from dealing with cryptocurrency exchanges,” Pandey said.

Crypto platform Coinswitch Kuber, which is backed by New York-based investment firm Tiger Global, is helping customers respond to such notifications by providing them documents like the Supreme Court verdict, Right to Information reply, and a copy of the RBI annual report that says that the circular has been set aside.

“Customers who reach out to us with the email they got from their bank, have been asked to respond to the email with the copy of the SC verdict and seek clarification on how they can close an account citing a circular that has been put aside,” said Sharan Nair, the platform’s chief business officer.

According to several people directly aware of the matter, crypto exchanges are currently evaluating their options and are hoping to resolve the matter with a dialogue instead of raising the matter in court again.

Last week, the Blockchain and Crypto Assets Council also sent representation to various government stakeholders to put forward the industry’s case for banking access, according to a person privy to the matter.

Indian crypto exchanges, which have seen record breaking transaction volume and customer sign-ups in recent months, are evaluating their options, including ways to seek clarification from the court and asking for additional supplemental material based on the verdict.

Besides raising the matter in court, crypto exchanges can opt to file a query under the Right to Information Act with RBI “seeking replies to a set of queries as to any direction being issued by them in this regard and if not why are banks denying the service to the customers or exchanges and approach the banking ombudsman with their grievances,” said Waris.

In May 2020, cofounder of crypto exchange Unocoin had filed an RTI query questioning whether the RBI had prohibited banks from providing accounts to crypto exchange companies or crypto traders.

There is no prohibition on banks providing accounts to traders dealing with virtual currencies, the Reserve Bank of India told cryptocurrency exchange Unocoin then.

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