In a major move, one of India’s largest private banks HDFC Bank, announced a ban on the usage of its debit and credit cards for cryptocurrency related transactions. The news comes shortly after the Reserve Bank of India (RBI) confirmed its stance on the matter, stating that it does not plan to classify cryptocurrencies as legal tender in India.
First Steps in Reducing Illicit Activity
The ban has been in place since March 14, 2018, following an email notification sent out to the bank’s patrons.
Despite there being no law preventing Indians from buying or trading cryptocurrencies, major lenders such as ICICI Bank and state-run SBI have taken it upon themselves to advise the public against investing in digital currencies.
The two banks in question were also responsible for suspending the accounts of some major cryptocurrency exchanges in January 2018.
In the email notification sent to all of its customers, HDFC Bank started off on an ominous note, stating:
“You may be aware of the increasing global apprehensions regarding bitcoins, cryptocurrencies, and virtual currencies.”
Citing RBI’s warning on the risks of trading cryptocurrencies, the email continued, “To ensure our customer’s security, we have decided to not permit usage of HDFC bank credit card, debit and prepaid cards towards purchase or trading of such bitcoins and cryptocurrencies.”
On November 6, 2017, the executive director of the RBI, S. Ganesh Kumar, made it clear that the government would not recognize bitcoin and other digital currencies as legal tender.
However, he added that the central bank was optimistic about the applications of blockchain technology in the finance and banking sector.
The Indian Finance Minister shared similar views during his annual budget speech. He stated, “The Government does not consider cryptocurrencies (as) legal tender or coin and will take all measures to eliminate the use of these crypto-assets in financing illegitimate activities or as part of the payment system.”
The legality of cryptocurrencies in India has never been unambiguously answered. The only thing the RBI has done is to issue cautionary press releases condemning them. Adding to the confusion, while the Indian government did label cryptocurrency investments and trading as legal, the taxation scheme on the gains received is still unclear.
Given that the tax rate for capital gains differs from other types of income, the incorrect filing of taxes has been a frequent concern for many individuals.
Cryptocurrency investments in India are still not as ubiquitous as in other Asian countries such as South Korea. Furthermore, most people in the country have only made small investments and do not have any intention to trade their holdings actively.
Former Indian bureaucrat, Shaktikanta Das, who spearheaded the first cryptocurrency regulatory body in the country, is also skeptical about their role in the Indian economy.
In an interview with Quartz, Das said that it may be almost impossible to regulate the asset class in the country after all. He also shared his concerns over the possible role of cryptocurrencies in illegal activities such as money laundering and terrorism financing.