The Reserve Bank of India urged lawmakers on Thursday to insulate the country's banks and regulated financial institutions from cryptocurrencies and privately issued stablecoins, telling a parliamentary panel that outright prohibition remains a live policy option. Deputy Governor Rohit Jain and Executive Director P. Vasudevan presented the central bank's position before the Parliamentary Standing Committee on Finance, according to The Economic Times. In a background note submitted to the committee, the RBI backed a containment strategy that would bar banks and regulated entities from dealing in crypto and privately issued stablecoins while blocking the use of such assets in payments and settlements. The central bank grounded its caution in risks that crypto could finance illegal activity, pointing to terror funding and drug trafficking, and warned that offshore entities holding such assets remain difficult for domestic authorities to supervise. The submission fed into the committee's wider review of virtual digital assets, a process carried through several rounds of consultation as India settles its approach to digital assets alongside the existing 30% tax on gains and 1% transaction levy.
RBI Recommends Banking System Isolation From Crypto Exposure
The central bank told the panel that prohibition remains a recognized policy option under international frameworks, positioning a ban alongside containment. Its recommendation centered on ring-fencing the formal financial system and keeping regulated lenders away from crypto exposure even as trading stays legal for individuals and enforcement agencies move against stablecoin-based payment rails.
The RBI cautioned that applying traditional financial regulation to crypto risks legitimizing speculative assets and handing users a false perception of safety, the report said. That position sets the central bank apart from SEBI, which has signaled openness to overseeing crypto that resembles securities. Officials pressed policymakers to separate crypto from tokenized instruments that already sit within existing regulation.
Central Bank Retains Prohibition as Recognized Policy Option
The central bank pointed to divergent global approaches, noting that China and Qatar have barred crypto activity outright while European jurisdictions permit it only under stringent conditions. It disputed claims that India ranks among the world's largest crypto markets, arguing that the methodology behind those estimates overstates adoption in more populous countries.
The RBI warned that offshore entities holding crypto assets remain difficult for domestic authorities to supervise. Those enforcement gaps, the central bank argued, make containment more practical than a licensing regime.
Parliamentary Committee Prepares Virtual Digital Assets Report
The submission fed into the committee's wider review of virtual digital assets, a process the panel has carried through several rounds of consultation with regulators, industry representatives and government departments including the Income Tax Department, which flagged the asset class as high-risk in its own submission.
The Institute of Chartered Accountants of India backed a comprehensive legal framework during the same discussions. Committee chairman Bhartruhari Mahtab said afterward that the RBI remains opposed to legalising virtual digital assets. The panel is preparing a report titled "A Study on Virtual Digital Assets (VDAs) and Way Forward" for the upcoming monsoon session.
FAQ
What did the Reserve Bank of India recommend to lawmakers regarding crypto?
The RBI urged lawmakers to keep banks and regulated financial institutions insulated from cryptocurrencies and privately issued stablecoins, backing a containment strategy that would bar such entities from dealing in these assets while blocking their use in payments and settlements.
Why does the RBI oppose crypto exposure for banks?
The central bank cited risks that crypto could finance illegal activity including terror funding and drug trafficking, and warned that offshore entities holding such assets remain difficult for domestic authorities to supervise, making containment more practical than a licensing regime.
What is the Parliamentary Standing Committee on Finance preparing on virtual digital assets?
The committee is preparing a report titled "A Study on Virtual Digital Assets (VDAs) and Way Forward" for the upcoming monsoon session, following several rounds of consultation with regulators, industry representatives and government departments.
