RBI hardens crypto stance as ban debate returns

The Reserve Bank of India has renewed its support for keeping cryptocurrency away from the formal financial system, reviving the prospect of a tougher national policy on private digital assets even as millions of users continue to trade through domestic and offshore platforms.

Government documents and briefings to a parliamentary panel point to a policy line that leans towards prohibition rather than licensing. The central bank has argued that banks and regulated financial institutions should not be allowed to hold, trade, finance or settle crypto assets, with stablecoins drawing particular concern because of their possible effect on monetary sovereignty, capital flows and payment systems.

The stance does not amount to an immediate ban on ownership or trading by individuals. It signals a hardening of regulatory intent at a time when the Union government has yet to finalise a comprehensive law for virtual digital assets. A bill listed in 2021 to prohibit private cryptocurrencies and create a framework for an official digital currency was never introduced, leaving the sector governed mainly through taxation, anti-money-laundering rules and enforcement action.

The central bank’s position rests on the view that crypto assets are difficult to regulate once they are admitted into the financial mainstream. Officials have warned that treating tokens as ordinary financial products could create the impression of state approval, even though the assets remain volatile, cross-border and hard to supervise. Concerns cover investor protection, money laundering, terror financing, tax evasion, capital-account leakage and the growing use of offshore exchanges.

The tax department has also flagged compliance gaps. Around 39 million residents held crypto assets worth about $2.1 billion by May 2026, while fewer than a quarter of 645,000 traders in financial year 2022-23 disclosed such holdings in tax filings. That gap has strengthened official unease over whether the current framework can track gains, losses and overseas transactions with adequate precision.

The country already taxes income from virtual digital assets at 30 per cent, with a 1 per cent tax deducted at source on qualifying transfers and no set-off for losses against other income. Crypto businesses are also covered under anti-money-laundering obligations, requiring reporting entities to conduct know-your-customer checks and report suspicious transactions. These measures have not settled the broader question of whether crypto should be regulated as an asset class or kept outside the financial system.

The policy debate has sharpened as global markets move in different directions. The European Union has rolled out a licensing and disclosure regime under MiCA, while Japan and Singapore have chosen supervised frameworks with consumer-protection safeguards. The United States has moved towards formal stablecoin rules, lifting industry expectations that dollar-linked tokens could become more widely used in payments and settlement. China, by contrast, continues to maintain a sweeping prohibition on crypto trading and mining while promoting its digital yuan.

The Reserve Bank of India has consistently preferred a sovereign digital alternative. Its digital rupee pilot is designed as central bank money in electronic form, carrying the same backing as physical currency. Officials see this model as safer than privately issued tokens because it preserves monetary control and settlement finality while allowing digital payments to evolve within a regulated structure.

Stablecoins remain the most sensitive issue. Most major stablecoins are linked to the US dollar, raising fears that wider use in domestic payments could weaken the rupee’s role, complicate monetary policy transmission and expose users to foreign issuers and reserve-management risks. The central bank has also cautioned that privately issued payment tokens could compete with bank deposits if they become a store of value or transaction medium.

The securities regulator has, at earlier stages of the debate, shown greater openness to activity-based oversight, especially for assets that resemble securities. Other regulators have examined whether insurance-linked, pension-linked or tokenised financial products should fall under their own mandates. The central bank’s latest position, however, points to a narrower perimeter in which tokenised government securities or regulated digital financial instruments may be treated differently from private cryptocurrencies.

Judicial history also weighs on the debate. The central bank’s 2018 circular that barred regulated lenders from dealing with crypto exchanges was set aside by the Supreme Court in 2020 on proportionality grounds. Any fresh prohibition would therefore require a stronger legislative base and a clearer demonstration of risk to regulated entities and the wider financial system.