The Reserve Bank of India (RBI) urged lawmakers to keep the country’s banks and regulated financial institutions insulated from cryptocurrencies and privately issued stablecoins, telling a parliamentary panel that outright prohibition remains a live policy option as India settles its approach to digital assets.
Deputy Governor Rohit Jain and Executive Director P. Vasudevan set out the central bank’s position before the Parliamentary Standing Committee on Finance on Thursday, according to The Economic Times. In a background note submitted to the committee, the RBI backed a containment strategy that would bar banks and regulated entities from dealing in crypto and privately issued stablecoins while blocking the use of such assets in payments and settlements.
RBI Draws the Line at the Banking System
The central bank told the panel that prohibition remains a recognized policy option under international frameworks, positioning a ban alongside containment but didn’t rule it out. Its recommendation centered on ring-fencing the formal financial system and keeping regulated lenders away from crypto exposure even as trading stays legal for individuals and enforcement agencies move against stablecoin-based payment rails.
The RBI grounded its caution in the risk that crypto could finance illegal activity, pointing to terror funding and drug trafficking, and it warned that offshore entities holding such assets remain difficult for domestic authorities to supervise. Those enforcement gaps, the central bank argued, make containment more practical than a licensing regime.
The RBI also cautioned that applying traditional financial regulation to crypto risks legitimizing speculative assets and handing users a false perception of safety, the report said. That position sets the central bank apart from SEBI, which has signaled openness to overseeing crypto that resembles securities, and officials pressed policymakers to separate crypto from tokenized instruments that already sit within existing regulation.
RBI Leaves Prohibition on the Table
The central bank pointed to divergent global approaches to make its case, noting that China and Qatar have barred crypto activity outright while European jurisdictions permit it only under stringent conditions. It also disputed claims that India ranks among the world’s largest crypto markets, arguing that the methodology behind those estimates overstates adoption in more populous countries. The submission fed into the committee’s wider review of virtual digital assets, a process the panel has carried through several rounds of consultation with regulators, industry representatives and government departments including the Income Tax Department, which flagged the asset class as high-risk in its own submission.
The Institute of Chartered Accountants of India backed a comprehensive legal framework during the same discussions, while committee chairman Bhartruhari Mahtab said afterward that the RBI remains opposed to legalising virtual digital assets. The panel, which is also examining the assets under income tax law, is preparing a report titled “A Study on Virtual Digital Assets (VDAs) and Way Forward” for the upcoming monsoon session. The central bank’s intervention places banking isolation at the core of India’s emerging crypto framework, sitting alongside the 30% tax on gains and the 1% transaction levy that already govern how Indians trade digital assets.