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Crypto traders' accounts now under increased scrutiny by Indian banks

Bank customers have received notices asking them to clarify crypto-related transactions.

India Gate, New Delhi / Image by: Wikimedia Commons

Thu, 25 Feb 2021, 14:36 pm UTC

Some banks in India are now closely monitoring the accounts of crypto traders and investors. The move came as the Indian parliament is contemplating imposing a nation-wide cryptocurrency ban.

India’s top private banks have been sending notices to their customers asking them to clarify crypto-related transactions, according to Cointelegraph. The financial institutions that have sent such notices to their clients include HSBC, Citibank, HDFC Bank, Axis Bank, and ICICI Bank.

Some clients are even required to visit their bank branch in person. The notices warn that failure to comply will put their accounts at risk of being seized or suspended.

“We have observed probable virtual currency transactions reflected in your account, kindly clarify the nature of these transactions by visiting the nearest branch within 30 days,” a communication sent by HDFC Bank said, according to Economic Times. “In case we do not hear from you, the bank will be constrained to restrict transactions in your account without any further reference to you.”

In 2020, most banks continued providing services to customers engaged in crypto trading after the Supreme Court reversed an order from the Reserve Bank of India that restricted such type of service. However, it appears that lenders are now referring to the same RBI-issued guidelines in the notices they sent to customers.

“To comply with the regulatory guidelines, banks are advised to exercise due diligence by closely examining the transactions carried out in the account on an ongoing basis to caution users, holders, and traders of virtual currencies including Bitcoins regarding risks,” one bank wrote to a customer. “RBI has also highlighted that regulated entities shall not deal in virtual currencies and they have to exit relationships with such customers.”

India’s crypto industry is facing an uncertain future with reports saying that the government will likely pass a ban on cryptocurrency. However, members of India’s crypto community have spoken against such a move as it could hurt the country’s fintech industry.

“With crypto by her side, the country can bank the massive unbanked population,” Sathvik Vishwanath, CEO of India-based exchange Unocoin, said.

Others believe that imposing a crypto ban might end up harming the country’s economy. “India could get 20% poorer from what it could have achieved over the five-year term. It is almost like banning the internet for 5 years,” Balaji Srinivasan, Coinbase’s former chief technology officer, said. “The losses add up a lot. [...] It would be a reversal of economic liberalization in many ways. It would basically be banning the financial internet from entering the country. And it wouldn’t even achieve the desired objective.”

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