National Payments Corporation of India which runs UPI in India has refused to ban cryptocurrency transactions and has instead asked banks to take a call based on their risk assessment
The domestic payments authority National Payments Corporation of India (NPCI) has refused to ban cryptocurrency transactions, putting the onus on banks whether to ban transactions of cryptocurrency trades or not. It told banks to take a decision based on the advice of their legal and compliance departments.
The NPCI’s advice is significant at a time when many banks are restricting payments for cryptocurrency deals. Almost half-a-dozen banks have directed payment gateway operators to blacklist merchants involved in the trade of cryptocurrencies, according to an Economic Times report. These banks restrict customers from using online fund transfer methods such as net banking and UPI to trade cryptocurrencies.
NPCI’s decision to restrict payment for cryptocurrency trades on UPI and RuPay cards would invariably be applied across all banks and investors would be left with very little option to conduct such trades. Users of banks which have disallowed crypto trades cannot use UPI, net banking or cards but trades continue as some banks still allow it. But it remains uncertain for how long it will continue.
NPCI’s decision is based on the Supreme Court’s March 2020 ruling which set aside a directive by the Reserve Bank of India from April 2018 to ban banks and finance companies for “dealing in virtual currencies or providing services to facilitate” anyone trading in crypto. NCPI has not blocked the trades given that the RBI did not come out with any directive following the Supreme Court ruling.
Each bank has a different take on crypto trades based on its risk assessment.
Banks barring payments for such trades is not within their constitutional rights after the Supreme Court’s ruling, Ashish Mehta, co-founder of DigitX told Economic Times. Exchanges are service platform which provide a marketplace to consenting buyers and sellers in a secured environment. They dont not directly buy or sell such assets. Denial or delay in providing support to such trades would be harmful for the entire economy, he added.
In such a scenario, traders are either moving to other banks which allow crypto trades or use less efficient fund transfer options such as IMPS, RTGS or NEFT which are rarely used for stock, forex or commodity trading on exchange platforms. If banks do no support such trades, it will get difficult for investors to sell such assets. It is possible to sell decentralised currency to overseas buyers under peer to peer deals but the same would fetch lower prices and add to currency conversion cost. Such deals attract queries from tax authorities.
