India's Central Bank Advocates for Separation of Crypto from the Banking Sector
The Reserve Bank of India (RBI) is urging lawmakers to create a barrier between the banking sector and cryptocurrencies. During a session with a parliamentary committee, the RBI emphasized that digital assets should not function as payment methods.
Seeking Legislative Support
The Parliamentary Standing Committee on Finance is currently examining virtual digital assets, and plans to present its findings in the upcoming monsoon session. The RBI has proposed a containment strategy that differs from traditional regulatory approaches, arguing that formal regulations could unintentionally validate speculative instruments. Officials expressed concerns that clear guidelines might mislead retail investors into believing these assets are safe.
Ongoing Concerns About Illicit Activity
The RBI reiterated its long-term worries regarding the potential for cryptocurrency to facilitate unlawful financial activities. They highlighted risks associated with drug trafficking and funding for terrorism, a topic that has been echoed in similar warnings from central banks in other developing markets this year.
This latest push comes after the RBI's defeat in 2020, when the Supreme Court overturned their banking prohibition. Now, the central bank aims to enlist Parliament's help in enshrining these restrictions in law.
Proposed Measures for Crypto Transactions
In its proposals, the RBI has advised against allowing cryptocurrencies as payment methods, advocating for substantial restrictions on any direct banking engagement with digital assets. This cautious approach aligns with various international regulatory practices, even as most regions lean towards licensing rather than outright separation. For instance, a recent move in Washington resulted in a ban on the US CBDC until 2030.
Addressing Regulatory Challenges
During the discussion, some committee members challenged the RBI's position, questioning India's ability to manage capital outflows while countries like Indonesia, Hong Kong, and the UAE have begun implementing regulations in the crypto space. Notably, India leads the 2025 Global Crypto Adoption Index, outranking the US and Pakistan.
Despite this, RBI officials maintained that "not having a policy is also a policy," according to sources from the committee.
Meanwhile, the Securities and Exchange Board of India (SEBI) signaled a possibility of regulating tokens perceived as securities, but the RBI withheld comment on this matter, vowing to provide a written response.
Position on Tokenized Government Securities
The RBI's proposal differentiates between cryptocurrencies and tokenized government securities, allowing for the advancement of a regulated bond market. This delineation aims to tackle speculation while maintaining room for innovative technologies like blockchain.
However, Indian crypto investors still face a heavy tax burden, with a 30% tax rate and an additional 1% levy on each trade. Industry proponents continue to advocate for a more favorable regulatory environment, including measures to promote local Bitcoin mining as an alternative to gold imports.
The parliamentary panel is set to consult with the Department of Economic Affairs on July 15, with expectations that their recommendations will shape India's approach to crypto regulation moving forward. In the coming weeks, it will become clearer whether Parliament will support isolation or adopt a framework similar to the EU's MiCA.
