Indian banks are still hesitant in providing financial services to crypto companies and investors despite recent regulatory developments, due to lack of clarity from the central bank.

Six banks Forkast spoke to declined to comment, stating they are unsure how the Reserve Bank of India (RBI) would react to any comment made by a bank on facilitating crypto trading in India. Banks also said, on condition of anonymity, that any facilitation would depend on RBI guidelines and that they are waiting for it. 

RBI had banned banking services for crypto companies in a 2018 circular that was struck down by the Supreme Court in March 2020. But today, some banks still don’t allow crypto transactions citing non-compliance issues, which is slowing down local adoption. 

“Banks do not want to participate right now because they don’t have full clarity from RBI or the government yet,” said Bhagaban Behera, co-founder and CEO of local crypto exchange Defy.

Based on Behera’s experience, less than half the banks in India are currently willing to provide crypto-related services. 

“Just a couple of smaller banks in India are comfortable allowing investors to open bank accounts and exchanges to have transactions,” Behera said. “That’s the real challenge right now.”

India’s finance minister Nirmala Sitharaman announced in her budget speech on Feb. 1 that RBI will launch a central bank digital currency in the financial year beginning April 1, which may have to compete with crypto if legitimized. The minister also announced plans for a 30% tax on crypto income, spreading hopes for crypto legalization in the country.

“Taxation does not mean anything to banks,” said Sathvik Vishwanath, CEO of Indian crypto exchange Unocoin. “Tax [liability] is on the individual — on what he or she files in income declaration every year — not on the banks.” 

Local exchanges expect banks to remain cautious for the time being, while the banks that do will continue monitoring transactions as exchanges currently do not have means to report suspicious transactions. 

“There is a risk-taking ability for the banks because if tomorrow there is something illegal then they don’t want a bad name for the bank,” Vishwanath said. “Eventually once regulations come up, cryptocurrency trading hopefully would be treated like the mutual funds and equity industry.”

The finance minister recently said the government and RBI will work in “complete harmony” on decisions, including crypto. Soon after, RBI deputy governor Shri T Rabi Shankar proposed an outright ban on cryptocurrencies, calling cryptocurrencies worse than Ponzi schemes and if allowed will wreck the currency system, the monetary authority, the banking system, and in general, government’s ability to control the economy. 

The deputy governor echoed RBI governor Shaktikanta Das’ recent comments, when the central bank chief warned investors of risks associated with cryptocurrencies, stating digital assets are “not even a tulip.” 

“Banks in India are controlled by a set of rigorous regulations, so the RBI has to issue a circular or a directive instructing banks on how to handle consumer queries when it comes to cryptocurrency purchases and transactions,” said Pradeep Gooptu, a financial markets expert. “Clearly India’s 30% tax proposal has run ahead of the preparedness of the RBI and individual commercial banks when it comes to transacting in cryptocurrencies,” Gooptu said. 

Exchanges and experts expect regulations over a ban, but the timeline is a mystery. Indian government officials have repeatedly clarified that taxing crypto wasn’t a move towards legalization, leaving banks to continue to wait for the central bank’s green light on cryptocurrencies. 

“RBI, like any other central bank, chooses to work fast but also doesn’t talk before it actually has its policy in place,” Gooptu said. “Let’s hope and pray that RBI’s directive to banks happens quickly because I think the consumer demand [for crypto] is quite strong.”