In the latest blow to the cryptocurrency ecosystem in India, Kotak Bank has temporarily halted payments to and from their exchange partner CoinSwitch Kuber. While there has been no official communication on halting financial services for crypto exchanges, the current regulatory environment has encouraged caution.
"There has been no fresh Reserve Bank of India directive asking banks to stay away from cryptos. But senior supervisory managers [of RBI] are telling some banks to exercise caution on cryptos till there is regulatory and legal clarity," said a senior official of another bank to The Economic Times.
Kotak Bank's decision to exercise caution comes on the heels of payment service provider MobiKwik's decision to sever ties with all cryptocurrency exchanges in the beginning of April. MobiKwik was one of the few financial service providers that had still partnered with multiple crypto exchanges in India.
While reluctance on the part of Indian financial institutions to invest heavily in partnerships with crypto exchanges is not a new phenomenon, an ill-advised comment made by Coinbase at their India launch on April 7 caused the first direct rebuke by an Indian authority since Finance Minister Nirmala Sitharaman announced new crypto regulations in February.
At their launch, Coinbase mentioned that they would be using UPI to help conduct fiat-to-crypto trades on their platform. However, within hours, the National Payments Corporation of India (NPCI) that runs the UPI platform, had sent out a press release saying that they were not aware of any crypto exchange in India using the service for this purpose.
While the RBI has not directly ordered banks to stop payments services with crypto exchanges after a Supreme Court decision in March 2020 that overturned a previous order, many banks and financial institutions have been wary of dealing with crypto exchanges ever since.