The Reserve Bank of India (RBI) is reportedly steering government crypto policy toward prohibition, calling for restrictions on banks and financial institutions from engaging with cryptocurrencies and privately issued stablecoins. This marks a significant shift as global financial markets move toward clearer crypto regulations.
According to internal documents obtained by Reuters, the RBI’s primary concerns focus on preserving the formal financial system’s stability. The central bank warns that enabling regulated lenders to interact with crypto assets could introduce systemic risks and contagion that jeopardize monetary sovereignty. Foreign currency-backed stablecoins are seen as a direct threat, while rupee-backed digital tokens face skepticism due to potential impacts on fiat currency issuance and government revenue.
Tax enforcement challenges are also at the heart of the debate. The Indian tax department identified significant underreporting in crypto transactions, noting that fewer than a quarter of participants in the last fiscal year disclosed their crypto trades. The prevalence of offshore exchanges, private wallets, and peer-to-peer rupee transactions complicates tracking and compliance. Despite implementing a 30% tax on crypto gains, authorities confront volatile asset valuations and inconsistent accounting standards. As a consequence, the Ministry of Corporate Affairs is reviewing accounting practices to better regulate virtual digital assets (VDAs).
India’s crypto market is sizable, with an estimated 39 million traders collectively holding around $2.1 billion in digital assets according to tax data. However, regulatory ambiguity persists—India has long maintained a grey zone status for cryptocurrencies. A proposed 2021 bill aiming to ban private cryptocurrencies was never introduced, and a promised formal policy discussion paper has been delayed indefinitely.
Meanwhile, major economies like the United States, Japan, and Singapore have advanced regulatory frameworks to accommodate and oversee crypto activities. The US recently introduced the CLARITY Act to the Senate, signaling stronger institutional support for the sector. By contrast, China maintains a strict ban on cryptocurrency use.
This regulatory uncertainty in India impacts exchanges, Web3 startups, and institutional investors, creating barriers to innovation and investment growth in the booming digital asset market.