RBI Tells Parliament: Crypto Gets the Velvet Rope, Banks Stay Inside 🎩

The Reserve Bank of India has asked lawmakers to wall off banks from crypto and privately issued stablecoins, reiterating its long-standing opposition to legitimizing digital assets through conventional regulation. Deputy Governor Rohit Jain and Executive Director P. Vasudevan presented the central bank's position to the Parliamentary Standing Committee on Finance on Thursday as the panel finalizes recommendations for India's digital asset policy, according to The Economic Times.

In a background note submitted to the panel, the RBI said prohibition remained a recognized policy option and recommended preventing the use of crypto in payments and settlements while restricting direct banking-sector exposure. The central bank warned that applying traditional regulation could legitimize speculative assets and create a false perception of safety among users, and it urged policymakers to distinguish crypto from tokenized government securities, corporate bonds and other regulated financial instruments so restrictions would not hinder tokenization. Committee members said the RBI argued for a containment strategy rather than a conventional rulebook, with one member quoting officials as telling the panel, "Not having a policy is also a policy," according to Business Standard.

The RBI raised long-standing illicit-finance concerns, citing risks tied to money laundering, narcotics trafficking and terror funding, and pointed to European jurisdictions that allow digital assets only under stringent regulatory frameworks as well as countries such as China and Qatar that have completely banned crypto-related activities. Officials also noted that many trading platforms and service providers are based abroad and fall outside Indian regulators' reach. The Institute of Chartered Accountants of India took a different position, telling the panel it could assist in developing accounting standards, financial reporting principles and compliance guidelines for virtual digital assets rather than supporting a prohibition. The Securities and Exchange Board of India earlier signaled it could regulate tokens classified as securities; the RBI declined to answer that question and promised a written response.

The latest proposal echoes the RBI's 2018 approach, when it directed regulated financial institutions to stop dealing in crypto or providing services to individuals and businesses involved in them, effectively cutting off exchanges from India's banking system without prohibiting ownership. India's Supreme Court overturned that circular in March 2020, finding that the central bank had not shown harm suffered by entities it regulated. In May 2021, the RBI clarified that banks could no longer cite the invalidated circular when cautioning customers, though they could continue applying know-your-customer, anti-money laundering and foreign-exchange compliance requirements.

India ranked first in Chainalysis' 2025 Global Crypto Adoption Index, ahead of the United States and Pakistan, although the RBI reportedly challenged the methodology behind private-sector adoption rankings. The proposal comes as India's crypto investors continue to face a 30% tax and a 1% levy on every trade, and as retail trading activity dropped to $979 billion in Q1 2026, an 11% year-over-year decline from Q1 2025, according to TRM Labs data. The first half of 2026 also saw a record 207 security breaches in the crypto industry, the most TRM Labs has tracked in a six-month period, with total losses dropping to $972 million from $2.3 billion in the same period in 2025. "The underlying threat has not diminished. In fact, it has gotten more sophisticated and more dangerous," said Ari Redbord, Global Head of Policy at TRM Labs. The panel is scheduled to meet the Department of Economic Affairs on July 15 before finalizing its recommendations, with the report expected to be tabled during the monsoon session.