HDFC Bank and Citi Bank have sent out notifications informing their customers that they have barred the use of their credit, debit and prepaid cards for the purchase or trade of cryptocurrencies like Bitcoins.
The notes mention that the step has been taken due to increasing global apprehensions and the RBI cautioning the public regarding the financial, legal and security-related risks associated with cryptocurrency trading.
Government and RBI on cryptocurrencies so far…
During his Budget speech in parliament last month, Finance Minister Arun Jaitley said that the government currently does not consider cryptocurrencies as legal tender and said that the government will take all measures to eliminate the use of crypto assets in the payment system.
Before that in December 2017, the ministry of finance had issued a warning on Bitcoin trading and other virtual currencies which are not backed by a government fiat. It also said that the price of Bitcoin is a matter of speculation and likened the trading of virtual currencies to Ponzi schemes.
Meanwhile, the RBI has cautioned users thrice already. The latest warning came in February last year. It said that any user, holder, investor, or trader dealing with cryptocurrencies would be doing so at their own risk.
The government had added that it and the Reserve Bank of India (RBI) hasn’t authorized virtual currencies as a medium of exchange nor has any regulator in India has given a licence to any exchanges. It again cautioned persons dealing with virtual currencies to consider these facts and beware the risks in dealing with them.
Currently, the price of Bitcoin in India stands at around Rs 5,90,465.52 ($9,096) slumping from an all-time high in December where it nearly touched Rs Rs 13,00,000 (or $20000)
Income tax department scrutiny
In January thousands of Indians dealing in cryptocurrency were served tax notices after a nationwide survey by the Income Tax Department showed that more than $3.5 billion (Rs 2,235 crore) worth of transactions were conducted over a 17-month period.
In December, the income tax department had conducted surveys across nine bitcoin exchanges across the country. The I-T department reportedly sought information about transactions, parties involved and bank accounts. Business Today had reported that there are 20 lakh entities registered on these exchanges and that about 4 to 5 lakh were operational and transacting.
In the absence of clear directives by the government and the RBI, banks are making the first move. By preventing the trade and purchase of bitcoins using the banking tools they hope to not get caught napping in case a ban hammer falls on the trading of bitcoins. But there are Indians who have heavily invested in bitcoins, some using credit or debit cards provided by HDFC or Citi Bank, this move might create anxiety for them.
But if these problems exist then why isn’t the government banning cryptocurrencies all together? As we had mentioned earlier, The government is caught in a bind: there are Indians who are already invested in bitcoin and thus there are third party rights in play. There is some groundwork already created with multiple notifications from the RBI warning against investing in bitcoins, so a ban would not be surprising. But the impact it would have on any move towards crypto-currencies in India would be seen as negative, and a ban would be seen as regressive. Lastly, this government is very guarded about the perception that India is a tech-friendly country, which would be seriously dented by any kind of a ban.
This isn’t just limited to India, most governments remain non-committal on the legality of bitcoins since it is not regulated by central banks. Some governments like that of South Korea and China have explicitly warned investors to exercise caution.