India's RBI Pushes to Keep Banks Away from Crypto

RBI Advocates Containment Strategy

The Reserve Bank of India (RBI) presented its position to the Parliamentary Standing Committee on Finance, recommending measures to prevent banks and regulated financial institutions from engaging with cryptocurrencies and privately issued stablecoins. Officials emphasized that such assets should not function as payment instruments or settlements.

In its background note, the RBI stated that prohibition remains a recognized policy option. The central bank advised lawmakers to block crypto from payments and limit direct banking sector exposure to digital assets. This approach aims to contain risks rather than apply standard regulatory frameworks that could give speculative assets an appearance of legitimacy.

Concerns Over Financial Stability and Illicit Activities

RBI officials warned that cryptocurrencies operate largely outside established oversight, raising challenges for monitoring. They linked digital assets to risks including money laundering, narcotics trafficking, and terrorism financing. The central bank noted difficulties in tracking offshore entities involved in such activities.

Private stablecoins received particular attention. The RBI argued that their widespread use could affect monetary policy transmission, fragment payment systems, and impact monetary sovereignty. Officials positioned the central bank's digital rupee efforts as the preferred path for digital payments innovation.

Historical Context and Past Legal Battles

This position revives elements of the RBI's earlier 2018 circular, which directed banks and financial entities to cease dealings with crypto businesses. That measure was overturned by the Supreme Court in 2020 on grounds of proportionality. Despite the ruling, the RBI has maintained cautionary guidance for regulated institutions.

Officials now seek to embed separation into law through parliamentary action, making it more durable than previous circulars. The current testimony occurred as part of the committee's review of virtual digital assets policy, with a report expected during the monsoon session.

Distinction for Tokenized Assets

The RBI drew a clear line between unregulated cryptocurrencies and tokenized versions of government securities or corporate bonds. Officials supported development of regulated tokenization on separate infrastructure, aiming to allow blockchain use in established financial instruments without extending to speculative crypto activities.

Adoption Data and Pushback

Committee members noted India's top ranking in the 2025 Global Crypto Adoption Index. The RBI challenged the methodology behind such private rankings, citing its own data on registered service providers and verified users. Officials pointed to links between crypto transactions and fraud cases reported through oversight channels.

Differing Views Within Policy Discussions

The Institute of Chartered Accountants of India presented an alternative perspective to the same committee, suggesting a comprehensive legal framework for virtual digital assets to enhance transparency and oversight. This contrasts with the RBI's containment focus.

The parliamentary committee continues to gather inputs from various stakeholders before finalizing recommendations on the country's approach to digital assets.