HDFC Bank and SBI Cards emailed their customers last week warning them of the risks of trading cryptocurrencies. While HDFC Bank has directed customers to disclose the nature of their transactions with crypto exchanges, SBI Cards has warned its customers not to use their credit cards to deposit funds for crypto trading purposes.
While the HDFC Bank sent e-mails to certain customers stating their account numbers, SBI Cards issued a general notice to their customers. MediaNama saw a copy of both emails.
In recent months, private banks have revoked deposit and payment services on the country’s cryptocurrency exchanges. While there is much speculation about the reasons for this move, bankers and industry executives have said that the Reserve Bank of India (RBI) has informally stated that they are happy with the level of crypto trading activity in the country. In January of this year, the government informed parliament that it would pass a new law banning cryptocurrency trading, mining and investment in the country, while giving RBI the powers it needs to start working on a digital currency start.
However, since the announcement, the government appears to have watered down its previous stance. The Treasury Secretary said the proposed law would take a “calibrated approach” and that investors would be given a moratorium period to clear their crypto holdings. In addition, the government has changed the disclosure rules for companies that classify cryptocurrency holdings as digital assets.
The disclosures apply to promoters, companies and corporations that exercise a fiduciary function, i.e. buy cryptocurrencies on behalf of end customers. It also clarified that crypto transactions would be taxable under the Income Tax Act and the tax system for goods and services. Even Nandan Nilekani has publicly stated that he supports the regulation of cryptocurrencies as financial assets. It was recently reported that the government is also looking to set up a new committee to examine the effectiveness of cryptocurrency regulation in the country.
SBI Cards issues a warning
In their email to customers, SBI Cards said that RBI had repeatedly warned customers about the risks of trading and trading in virtual currencies. It states that RBI has not given any of the companies it regulates to operate in cryptocurrency systems or any form of virtual currency such as bitcoins. The email also stated that credit card services would be blocked for all customers who use their card on a cryptocurrency exchange or merchant platform.
HDFC Bank cites 2018 RBI circular
In its email to customers, HDFC Bank said that customers must go to the nearest branch within 30 days to clarify the nature of certain transactions on crypto exchanges. “We have observed that your account is likely to reflect virtual currency transactions that are not allowed under RBI guidelines,” it said. If the customer does not clarify the nature of his transactions on crypto exchanges within the next 30 days, HDFC Bank says that it will restrict account transactions without further notice.
– Mayank nimbalkar (@Mayanknimbalkar) May 31, 2021
Interestingly, the bank cited the RBI in April 2018 circular prevented banks from doing business with individuals or companies that traded virtual currencies. But that circular was rejected by the Supreme Court last year on grounds of proportionality.
Crypto Regulations Are Inevitable: HDFC Bank
In a May 27 report by HDFC Bank’s finance department, the bank stated that there are 10 million cryptocurrency holders in India with $ 1.36 billion. “The frantic sell-off of cryptocurrencies recently reminded market participants of its still uncertain status with regard to general acceptance and regulatory concerns. A significant drop in cryptocurrencies last week has raised concerns about their potential as mainstream investments, ”the report said. The bank analyzed the returns on leading cryptocurrencies and compared them to returns from investments in the S&P and NASDAQ indexes and gold. While the returns on Bitcoin were 36%, the returns on the S&P index have been 17% since early 2021, the bank said.
“Like most conventional investors, we still have to reconcile the often contradicting properties of cryptocurrencies. Yes, they help hedge against strong moves in other asset classes, but their own volatility, which seems to be mainly driven by temporary bouts of intense interest (e.g. damper. However, as central banks step into the crypto game, key features like the limited Legacy crypto supply, this is an area that needs to be watched closely. We think it is only a matter of time before Indian investors have legal access to crypto games. “– HDFC bank
MediaNama has created a guide to cryptocurrency regulations in India, which outlines the position of the government over the past few years and various policy recommendations. read it here: A complete overview of the regulation of cryptocurrencies in India.