HDFC Bank withdraws letter on crypto transactions after RBI clarifies that its 2018 circular is no longer valid

• Crypto regulations in India have been unclear, to say the least, but a concrete direction is expected later this year.
• An RBI circular from 2018 was struck down by the country’s Supreme Court in March last year.
• India has been working on a “calibrated” approach towards crypto, its finance minister had said.

India’s HDFC Bank retracted an email sent to customers late last week, which warned them about dealing in cryptocurrency transactions. The company had sent an email over the last weekend, which cited a 2018 order from the Reserve Bank of India (RBI) — the country’s central bank — to essentially say that cryptocurrency transactions are illegal in India.

However, the central bank later clarified, on May 31, that the 2018 circular had been struck down by the Supreme Court of India (SC) and can’t be cited. “As such, in view of the order of the Hon’ble Supreme Court, the circular is no longer valid from the date of the Supreme Court judgement, and therefore cannot be cited or quoted from,” the RBI had said in its circular.

Post this clarification coming in from the RBI, HDFC Bank has sent fresh emails to its customers asking them to ignore the earlier cautionary note. “We wish to update you that in the light of the advisory issued by RBI…dated May 31, 2021, on ‘Customer Due Diligence for transactions in Virtual Currencies’, we request you to ignore our earlier communication dated May 28, 2021,” according to the email. “Inconvenience caused is regretted,” the new email from HDFC Bank said.


The State Bank of India had also sent letters to customers, meant to deter them from dealing in crypto. However, it didn’t cite the 2018 RBI ruling. “The Reserve Bank of India has repeatedly through its public notices cautioned users, holders and traders of virtual currencies, including Bitcoins, regarding various risks associated in dealing with such virtual currencies,” the SBI letter said. “RBI has not given any license/authorization to entities regulated by them to operate in cryptocurrency schemes or any form of virtual currencies such as Bitcoins,” the letter added.

Where do India’s regulations on crypto stand?

India’s cryptocurrency regulations have been unclear, to say the least. The issues began in 2018, when the RBI issued a circular that asked all financial entities regulated by it to stop dealing with crypto companies. This order was struck down by India’s Supreme Court in March last year, which cited proportionality concerns with the order.

This led to a period of sustained growth for crypto exchanges in India, especially on the back of bull runs by various cryptocurrencies last year. Exchanges like WazirX have recorded up to $2 billion in total trading value in February this year, but that’s when issues began again.

Just ahead of the budget session of India’s Parliament, a listing on the Parliament’s agenda said that a new bill would be proposed during the session. This bill would aim to ban all cryptocurrencies in India, and lay the framework for an RBI-regulated central bank digital currency (CBDC). This led to confusion amongst traders, investors and the overall crypto community, about whether the industry would become illegal in India.

The bill wasn’t brought up during the session, but that could have been because the second wave of COVID-19 infections in the country cut the Budget session short this year. But the concerns mounted late last month, when an informal guidance from the RBI to banks, led lenders to stop dealing with crypto exchanges and companies again. Exchanges had to stop taking rupee deposits from users, almost overnight, and haven’t been able to restore services since.

However, regulations still remain unclear. There is no order, law or notice in India that makes dealing in cryptocurrency illegal. Finance Minister Nirmala Sitharaman has said that the government is considering a “calibrated” approach to cryptocurrencies in India, and a clearer direction is expected later this year.

The crypto industry has also been working on self regulating under industry body IAMAI (Internet and Mobile Association of India). The Blockchain and Crypto Assets Council (BACC), which has been set up under the IAMAI, had welcome the RBI’s clarification earlier this week, and said it has set up a self-regulatory code of conduct for its members, which includes top exchanges like WazirX and CoinDCX. “It is well known that with 15 million users and upwards of 10,000 crores held by small investors, India is among the top players globally in the crypto market and for the welfare of the users it is very important that crypto assets are regulated,” the council said on June 1.


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