Banks reportedly seek clarity on crypto’s relationship with India’s largest payments service

• The statement from the NPCI, issued earlier this month, has led crypto exchanges to stop UPI payments in India.
• Crypto exchanges have been at odds with banks in India all through 2021 and 2020.
• The Reserve Bank of India is one of the most vocal opposers of cryptocurrencies around the world.

Banks in India have reached out to the National Payments Corporation of India (NPCI) seeking clarity on the relationship between cryptocurrencies and the country’s Unified Payments Interface (UPI) platform, according to a report by the Economic Times. The NPCI manages the UPI platform, which has become the most popular digital payments mechanism in India over the past six years.

This comes after the recent friction between the NPCI and the crypto ecosystem that took place earlier this month, when American crypto exchange Coinbase officially launched in India. The company offered trading services in Indian rupee, by allowing users to deposit money on the Coinbase platform using the UPI platform.

Late on the same day, the NPCI issued the following statement:

“With reference to some recent media reports around the purchase of Cryptocurrencies using UPI, National Payments Corporation of India would like to clarify that we are not aware of any crypto exchange using UPI."

Coinbase promptly disabled the UPI option on its platform, leaving Indian users with virtually no way to continue trading on the exchange. Other crypto exchanges, including billion dollar startups CoinSwitch Kuber and CoinDCX, also discontinued UPI payments on their platform over the next week.

According to the Economic Times report cited above, banks have asked the NPCI for “verbal instructions” on the next steps for NPCI. However, the report also states that the regulatory body is unlikely to come up with any such directions.

Renewed concerns

The statement from NPCI has renewed the difficult relationship crypto exchanges and firms in the country have had with payments services, including banks and wallets, in India.

Digital payments wallet and platform, Mobikwik, also withdrew services from such platforms on April 11, shortly after the NPCI statement. PayTM Payments Bank, a bank operated by Indian payments service provider PayTM, has withdrawn services too, in the past.

Crypto exchanges in India have had troubles with banks all through 2021 and 2020. In April-May last year, an unofficial letter from the Reserve Bank of India (RBI) to banks in the country, led most banks to stop providing services to crypto exchanges. Almost every crypto exchange had to stop taking rupee deposits almost overnight. Some banks continue to stop offering services to crypto firms since then.

As far as central banks go, India’s RBI has been one of the most vocal oppositions for crypto trading around the world. “Private cryptocurrency is a huge threat to macro-economic stability and financial stability...investors should keep this in mind that they are investing at their own risk," RBI Governor, Shaktikanta Das, said while announcing the country’s monetary policy in February.

The situation is a tad different this time though. The NPCI’s statement came at a time when the crypto industry in India was already witnessing a drop in trading volumes, thanks to new taxation rules announced by the government that came into effect from April 1.

India has decided to impose a 30% tax on crypto trading income in the country, along with a 1% tax deduction at source (TDS) on sellers of cryptocurrencies. These taxes were announced in February and March and came into effect from April 1. On April 11, crypto research firm CREBACO reported that volumes on four Indian exchanges, including WazirX, CoinDCX, Zebpay and BitBns, had dropped in the 10 days since the new taxes were enforced.

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