India's Central Bank Renews Call to Bar Banks From Crypto

India's central bank has renewed its push to keep banks and financial institutions out of crypto entirely, according to internal government documents from May and June reviewed by Reuters. No formal policy exists yet. The Reserve Bank of India is still leaning toward prohibition, Reuters reported.

Indian banks are not currently prohibited from dealing in cryptocurrencies. Major lenders have largely avoided the sector after repeated warnings from the RBI. The central bank wants to keep crypto out of the regulated financial system, a source told Reuters.

The RBI extended its warning to stablecoins. Foreign-currency-backed tokens threaten domestic monetary sovereignty, the central bank said. Rupee-backed versions could cut into government revenue from issuing currency and add financial-stability risk during market stress. Wider stablecoin use makes crypto gains harder to tax, since holders have less need to convert into rupees, the central bank added.

India's tax department separately flagged serious compliance gaps. Fewer than a quarter of the 645,000 people with crypto transactions in the year ending March 2023 declared those gains on their tax returns, Reuters quoted the agency as reporting. Officials said transactions routed through offshore exchanges and private wallets make it difficult to identify holders and collect what is owed. Peer-to-peer trades add another layer of complexity, officials said.