India: Banks Seek Formal Crypto Directive From Payments Body

India’s leading banks have asked the National Payments Corporation of India (NPCI) to lay out a formal directive for the buying and selling of virtual digital assets (VDAs).

The Economic Times reported that banks blocked their Unified Payment Interface (UPI) instant payment method on NPCI’s “verbal instructions”. 

However, the paper claims that banks have now raised the issue with the regulatory body.

UPI allows bank account holders to send and receive money from their smartphones without the need to enter bank account information or net banking user ID and password. 

However, a formal directive from NPCI seems unlikely any time soon. An NPCI official told The Economic Times that there are “no intentions of any circular”. 

This reluctance can be put down to the legal complication that an official ban would lead to, say bankers. If there is a formal circular to ban UPI for cryptos or Virtual Digital Asserts, the crypto industry in all likelihood would legally contest it – as they had done when RBI imposed a ban in April 2018,” said a banker.

That ban was lifted in 2020, creating a crypto gold rush.

“We didn’t quite understand NPCI’s decision. While it informally restricted UPI (for crypto trades), it’s silent on Immediate Payment Services… This point was also raised by someone at the meeting,” said a source.

Meanwhile, e-wallet services provider Mobikwik has also halted its services on crypto platforms.

India suffers brain drain

Lack of regulatory clarity has also reportedly led to two co-founders of cryptocurrency exchange WazirX to move to the Middle East.

This comes two years after Sandeep Nailwal, the co-founder of Polygon, along with his team also moved to Dubai citing legislative hurdles to Web3 development in India.

In a recent conversation with FE.com, Rajagopal Menon, vice-president of WazirX said, “India is demanding cryptocurrency with regulations because people want to invest, but they are not able to because of the lack of regulations.”

He also raised worry about the crashing exchange volumes due to the new tax regime, leading to smaller exchanges losing out. The executive added, “When it comes to cryptocurrency exchanges in India, policies are conservative and founders want their freedom to experiment. The rule of the Indian space is that regulation precedes innovation, which results in the brain drain of cryptocurrency innovators.”