India's Central Bank Wants Crypto Out of the Banking System

The Reserve Bank of India told a parliamentary panel that digital assets should not serve as payment instruments. The central bank wants lawmakers to formally separate the banking system from crypto, a move that would cut off exchanges from the payment rails they rely on for deposits and withdrawals.

The RBI has opposed crypto for years. In 2018 it issued a circular banning banks from servicing crypto firms, a restriction the Supreme Court overturned in 2020. Since then the central bank has argued that private digital currencies threaten financial stability, monetary policy transmission, and consumer protection. Its latest submission to the parliamentary panel on finance repeats those concerns and asks for a statutory ban on crypto as a medium of exchange.

For India's crypto exchanges, the practical effect would be severe. Most platforms depend on bank transfers for rupee deposits and withdrawals. A banking ban would force users into peer-to-peer cash markets or offshore platforms, shrinking volumes and revenue. Several exchanges already operate under the shadow of the 2022 tax regime – 30% on gains and 1% deducted at source on every trade – which pushed trading volumes down by more than 90% from their 2021 peak. A banking prohibition would compound that.