India's Central-Bank Owned Retail Payments Platform Refuses to Ban Crypto Transactions

The National Payments Corporation of India (NPCI), a central bank-owned retail payments system, has deferred the issue of whether to allow customers to make and receive payments from cryptocurrency trading to commercial banks, according to the Economic Times.

Some bankers apparently had asked the agency to block crypto transactions on its network, the paper reported. Instead, the agency told banks they should consult their legal and compliance departments on whether they should block transactions on their own systems.

“The banks had approached NPCI for restricting direct UPI transactions,” the Economic Times wrote, citing an industry official. “However, the committee has put the onus on banks.”

The development represents the latest chapter in the ongoing saga of whether the Indian government might crack down on cryptocurrencies, even as trading volumes in digital assets have exploded over the past 12 months.

In March 2020, the Supreme Court of India set aside the Reserve Bank of India's banking ban on cryptocurrency trading. Since early this year, the Indian government has been mulling a ban on private cryptocurrencies.

NPCI's decision to put the onus on the banks comes at a time when few lenders are blocking cryptocurrency deals.

Per the ET report, some banks have blacklisted merchants buying or selling cryptocurrencies, though few are restricting customers from funding crypto trading accounts via net banking and united payments (UPI) interface.

"Customers of banks which have disabled crypto cannot anyway use facilities like UPI, net banking or cards," the industry official told ET. "However, trades continue to happen as many banks are still allowing."

Some experts say the government would be better off legitimizing bitcoin by regulating it like corporate stock.

"Just like you cannot ban porn, you cannot ban cryptocurrency," Ratan Sharda, author, editor, and TV panelist, said last year.

IndiaTech.org, an industry association representing India's consumer internet startups and investors, published a white paper on Wednesday, asking the government to recognize cryptocurrencies as digital assets and not currencies.

Also read: Indian Crypto Firms Suggest Policy Ideas to Government Ahead of Possible Ban

"If NPCI had taken a central decision to disable united payments interface and RuPay cards for investing in cryptos, it would have applied to all banks uniformly and left investors with fewer payment options," an industry official told ET.