RBI tells parliamentary panel banks must stay fully separated from crypto
India's central bank is once again urging policymakers to shield the country's banking system from cryptocurrencies, signaling a renewed effort to tighten oversight as digital asset regulation enters a critical phase.
The Reserve Bank of India has told a parliamentary committee that banks and payment providers should stay walled off from cryptocurrencies and privately issued stablecoins, reviving a policy fight that has defined India’s crypto market since 2018.
According to a report by The Economic Times, Reserve Bank of India Deputy Governor Rohit Jain and Executive Director P. Vasudevan presented the central bank’s position before the Parliamentary Standing Committee on Finance on Thursday. Alongside their presentation, the RBI submitted a background note outlining policy recommendations designed to reduce financial sector exposure to crypto-related risks.
The proposals suggest maintaining a clear distinction between regulated financial assets and cryptocurrencies while discouraging the use of digital assets in India’s mainstream payment ecosystem.
RBI seeks stronger separation between banks and cryptocurrencies
The latest RBI crypto regulations proposal recommends limiting the exposure of banks and payment service providers to cryptocurrencies and privately issued stablecoins. The central bank reportedly believes that preventing deeper integration between traditional finance and speculative digital assets would help preserve financial stability.
According to the report, the RBI maintained that banning cryptocurrencies from being used in payments and settlement systems remains a legitimate policy option available to lawmakers.
The central bank also argued that regulating cryptocurrencies under the same framework as traditional financial products could unintentionally create a false sense of security among investors.
Rather than legitimizing highly volatile digital assets through conventional financial regulation, the RBI reportedly believes policymakers should maintain clear distinctions between speculative cryptocurrencies and regulated financial instruments.
Importantly, the RBI emphasized that tokenized versions of legitimate assets—including government securities, corporate bonds, and other regulated financial products—should remain outside any crypto-related restrictions. This distinction reflects the central bank’s support for financial innovation through tokenization while continuing to oppose broader cryptocurrency integration.
The RBI also questioned the methodology behind private-sector crypto adoption rankings, despite India securing the top position in Chainalysis’ 2025 Global Crypto Adoption Index, suggesting that such rankings may not accurately reflect regulatory or financial realities.
A familiar policy stance with deep historical roots
The renewed RBI crypto regulations proposal closely mirrors the central bank’s long-standing concerns dating back several years.
In 2018, the RBI directed regulated financial institutions to cease providing banking services to businesses and individuals involved in cryptocurrency transactions. While the circular stopped short of outlawing cryptocurrency ownership or trading, it effectively isolated crypto exchanges from India’s banking infrastructure.
That landmark restriction dramatically reshaped India’s crypto market until India’s Supreme Court overturned the directive in March 2020 following legal challenges brought by cryptocurrency exchanges and the Internet and Mobile Association of India (IAMAI).
The court acknowledged that the RBI possesses broad authority to safeguard the country’s financial system but ruled that the banking restriction was disproportionate because the central bank had not demonstrated measurable harm to regulated financial institutions.
The following year, the RBI issued further clarification instructing banks that they could no longer rely on the invalidated 2018 circular when issuing warnings about cryptocurrency transactions.
However, financial institutions were simultaneously reminded to continue enforcing existing compliance obligations, including Know Your Customer (KYC), Anti-Money Laundering (AML), and foreign exchange regulations.
The central bank has consistently maintained a cautious position toward cryptocurrencies. RBI Governor Shaktikanta Das has repeatedly warned that private cryptocurrencies pose risks to macroeconomic and financial stability.
Speaking previously about digital assets, Das stated, “Cryptocurrencies are a clear danger. Anything that derives value based on make-believe, without any underlying, is just speculation under a sophisticated name.” That view has remained central to the RBI’s regulatory philosophy.
While the latest RBI crypto regulations recommendations focus heavily on banking exposure, Indian authorities are simultaneously strengthening oversight across multiple regulatory fronts.
Last month, India’s Financial Intelligence Unit (FIU-IND) instructed several major cryptocurrency exchanges to preserve records for over-the-counter (OTC) crypto transactions exceeding $10,000 beginning in January 2026.
The compliance measures require exchanges to maintain detailed records concerning beneficial ownership, sources of funds, and destination wallet addresses.
The directive follows earlier FIU guidance that expanded customer due diligence requirements through enhanced identity verification procedures, including live selfie authentication, geolocation tracking, IP address monitoring, and periodic KYC updates.
These developments reflect India’s broader effort to align cryptocurrency oversight with global anti-money laundering standards while increasing transparency across digital asset markets.
Industry observers note that India’s regulatory approach has increasingly emphasized compliance rather than outright prohibition, even as the RBI continues advocating strict banking safeguards.
Stablecoins remain under growing regulatory pressure
The debate surrounding RBI crypto regulations extends beyond cryptocurrencies to privately issued stablecoins, which have drawn increasing attention from regulators.
Earlier this week, The Economic Times reported that enforcement actions targeting crypto remittance firms disrupted the domestic supply of USDT, causing the stablecoin to trade at premiums exceeding 8.5% in India.
The report highlighted how tighter regulatory enforcement can directly influence liquidity within India’s digital asset ecosystem, particularly for stablecoins commonly used in cross-border transfers and crypto trading.
Meanwhile, lawmakers are expected to continue discussions regarding India’s virtual digital asset policy alongside representatives from the RBI and the Institute of Chartered Accountants of India (ICAI).
The outcome of those discussions could significantly shape the country’s future regulatory landscape.
For now, RBI crypto regulations continue to reflect the central bank’s long-standing objective of insulating India’s banking and payment systems from cryptocurrency-related risks while allowing innovation in regulated tokenized financial assets to progress independently.
As policymakers weigh competing priorities of innovation, financial stability, and consumer protection, India’s evolving crypto framework may become one of the most closely watched regulatory models among major global economies. The renewed RBI crypto regulations proposals underscore that the debate is far from settled, with policymakers continuing to balance technological advancement against the potential risks posed by cryptocurrencies and privately issued stablecoins.
