RBI urges limiting banks’ exposure to crypto, stablecoins

Deputy Governor Rohit Jain and Executive Director P. Vasudevan presented the central bank’s position to the Parliamentary Standing Committee on Finance on Thursday. They submitted a background note that stated prohibition remained a recognized policy option and recommended preventing crypto use in payments and settlements while restricting banks’ exposure.

The background note argued keeping crypto assets outside the regulated banking system would reduce the risk of losses or contagion for supervised institutions. It warned that applying usual banking regulation to unbacked crypto tokens could create a false perception of safety and effectively legitimize speculative instruments.

RBI officials urged lawmakers to distinguish between speculative crypto tokens and tokenized versions of regulated instruments such as government securities and corporate bonds, so restrictions aimed at protecting banks would not hinder legitimate tokenization efforts.

The submission questioned the methodology behind private-sector measures that rank national crypto adoption and added that policy should rely on regulatory assessments rather than private indexes.

The central bank’s position echoes a 2018 directive that told regulated financial institutions to stop dealing in crypto and providing services to crypto firms, which cut off many exchanges from the formal banking system without banning private ownership. India’s Supreme Court overturned that circular in March 2020, finding the RBI had not shown specific harm to regulated entities and that the measure failed the test of proportionality.

After the ruling, in May 2021 the RBI clarified banks could not cite the invalidated circular to discourage crypto transactions, while reiterating obligations on know-your-customer, anti-money-laundering and foreign-exchange compliance. The latest submission to Parliament repeats those compliance expectations and presses for tighter limits on how banks interact with crypto and privately issued stablecoins.

Lawmakers are preparing a report on digital asset policy. The RBI framed containment and selective prohibition as tools to manage systemic and consumer risk and to limit banking-sector exposure to speculative digital assets.