India's RBI pushes crypto bank ban as tax gap widens

India has roughly 39 million crypto investors. The central bank's preferred solution is to make the whole thing illegal.

Internal documents from May and June 2026, reported by Reuters, show the Reserve Bank of India is holding firm on its long-standing prohibition stance. The RBI specifically wants to bar banks and financial institutions from holding, trading, or taking any exposure to crypto assets and privately issued stablecoins. The reasoning spans macroeconomic stability concerns, risks to seigniorage income, and a tax compliance picture that is, to put it generously, bleak.

Here is the number that explains why the RBI is frustrated. Of the 645,000 individuals who conducted crypto transactions in FY2022-23, fewer than 25% reported those activities to India's Income Tax Department.

India introduced a 30% tax on crypto gains and a 1% Tax Deducted at Source on transactions back in 2022. Those rules are still in effect. The 1% TDS was designed specifically to create a paper trail, making it harder for transactions to disappear. The Income Tax Department has flagged offshore channels as a significant structural problem. When a trader routes activity through a foreign exchange like Binance or Coinbase or conducts bilateral trades, the transaction simply does not show up in domestic reporting systems.

The Securities and Exchange Board of India has signaled openness to building a regulatory framework for the crypto sector rather than shutting it down. That puts two of India's most powerful financial regulators on opposite sides of the same policy question.

The RBI originally banned banks from serving crypto businesses back in 2018. The Supreme Court overturned that restriction in 2020, ruling it unconstitutional. A draft bill proposing an outright ban circulated in 2021 and went nowhere. Since then, no new crypto legislation has been passed.

The 2022 tax measures were introduced partly as a revenue mechanism and partly as a soft brake on speculative activity. The 30% rate had a measurable effect on domestic trading volumes, pushing some activity toward foreign platforms. That migration is now cited as one of the reasons tax enforcement is so difficult.

Approximately 39 million investors held around $2.1 billion in crypto assets as of May 2026. If the RBI's position hardens into policy, any bank or financial institution considering custody services, crypto lending, or even stablecoin settlement rails would be prohibited from doing so.

The United States has moved toward stablecoin legislation, creating a framework rather than a ban. China went the other direction with an outright prohibition. India sits somewhere between those two endpoints, currently closer to China in the RBI's preferred outcome but with a judiciary that has already ruled once against the central bank's attempt to cut off crypto's banking access.

The next move belongs to the Indian legislature, which has not legislated on crypto since the 2021 draft bill stalled. Until Parliament acts, the RBI can advocate, SEBI can propose frameworks, and 39 million investors can keep doing what three-quarters of them were already doing: operating largely outside the tax net.