Over the past few years and most specifically with the CONID-19 pandemic cryptocurrencies have become an increasingly popular mode of investment and trading in India, where Indian youth have become more enthusiastic about it. As the younger generation is more technologically savvy, they are more open to new concepts like blockchain technology and cryptocurrencies.
The rapid rise in demand for crypto in India has been lead in part by the crypto exchanges like WazirX, Zebpay, CoinDCX, and Unocoin as these have enabled Indian investors to invest in cryptocurrencies in a more convenient manner. However, over the past month, many Indian crypto exchanges have been facing issues with their banking partners, which leads to the main problem of users being unable to deposit funds into their accounts.
Most of these crypto exchanges had to block all rupee deposits over the past several days. Whereas the last payment method crypto exchanges such as WazirX and Coinswitch Kuber had, which is PayTM was shutdown on May 20th. According to the crypto community in India, crypto traders are also receiving notifications from their banks inquiring about crypto-related transactions and warn them of such transactions saying, that their accounts may be closed.
What is the main reason behind this?
An unofficial guidance from the Reserve Bank of India (RBI) which is the key financial regulator of the country has put banks and lenders on the edge, as the media reports points out. The informal communication from the RBI affected the already fragile relationship crypto exchanges had with Indian banks, and many banks started shutting down their bank accounts.
The banks in India have reportedly asked the National Payments Corporation of India (NPCI), a RBI owned retail payments system, to block crypto-related transactions. Even though, the agency has refused to do it, crypto exchanges are still having issues with their customers’ banking transfers.
According to banking industry source, “the issue is that banks are regulated by the RBI. Without a formal direction on how to go about cryptocurrency transactions, most banks prefer to follow the RBI’s previous directive.” Some crypto traders have said that banks are now asking their customers to fill self declaration forms stating that they are not conducting cryptocurrency related transactions.
This informal initiative by the RBI have come into effect in situation where the Supreme Court of India had lifted the ban on trading of cryptocurrency in March 2020. Even though, the Finance Ministry had also proposed to bring a legislation to ban cryptocurrencies, it has been put off for now.
Exchanges are Hard Hit
Many private banks such as ICICI and Axis bank have openly made statements that they consider crypto investments risky and have stopped giving services to crypto exchanges. As per a report by The Quint, banks have also stopped providing UPI services to the crypto exchanges.
WazirX which is a crypto exchange in India is going to stop accepting payments INR deposits to their PAYTM Bank account from May 21. When people try to deposit INR through bank transfers, they get the message ‘Sorry this mode is temporarily disabled’. CoinDCX and Coinswitch Kuber exchanges have also reported on their Twitter often that their INR deposits have been disabled due to issues with their banking partners.
In April 2021, domestic cryptocurrency exchange WazirX recorded a monthly volume of $5.4 billion. Similarly, CoinDCX, has seen a year on year growth of 340% in new user sign-ups and has moved from 1,50,000 to 4,00,000 in the last 15 months. But with the current situation, it is highly doubtful whether these exchanges could reach those volumes once again.