RBI backs crypto containment and keeps ban on table, officials tell house panel

New Delhi: Top officials of Reserve Bank of India (RBI), in a submission to a parliamentary panel, backed a containment strategy leaning towards prohibition, recommending that banks and other regulated financial institutions remain completely insulated from crypto assets and privately issued stablecoins.

RBI deputy governor Rohit Jain and executive director P Vasudevan gave submissions on behalf of the central bank to the Parliamentary Standing Committee on Finance headed by BJP MP Bhartruhari Mahtab.

This was the 7th meeting of the panel on virtual digital assets. So far, the panel has taken evidence from Department of Economic Affairs, FIU, CBDT, and several private players in VDA sphere. "We are likely to come up with report on it soon," Mahtab told ET.

In a background note submitted to the panel, RBI said "prohibition remains one of the recognised policy options under international standard-setting frameworks and continues to merit careful consideration".

A calibrated containment strategy leaning towards prohibition would help ring-fence the financial system by preventing crypto use in payments and settlements, restricting banking sector exposure and limiting systemic linkages, RBI noted.

The central bank cautions that extending conventional regulatory treatment to crypto assets could inadvertently legitimise speculative products that have "no beneficial economic impact". It asserted that such an approach could create a "false perception of safety" among users while formalising banking sector exposure to crypto assets.

It has, therefore, recommended that banks and regulated financial institutions should not be permitted to hold, trade or undertake exposure to crypto assets or privately issued stablecoins, arguing that such measures are necessary to insulate the financial system from potential contagion risks.

RBI also challenged the widely cited claim that India is the world's largest crypto adopter. It said the ranking, based on private blockchain analytics, is methodologically flawed and overstated adoption in populous countries.

According to data cited in the note, India currently has 54 FIU-registered crypto service providers, while 3.93 crore KYC-verified users hold crypto assets worth around ₹20,436.59 crore.

RBI has also sharpened its warning against stablecoins, saying widespread adoption could undermine India's monetary sovereignty, weaken monetary policy transmission, fragment payment systems and pose broader financial stability risks.

Citing the BIS Annual Economic Report, it said current stablecoin designs fall short of the foundational properties of money.

Instead, it advocated strengthening sovereign digital payment infrastructure through the Central Bank Digital Currency. RBI suggested that a significant portion of current crypto currency utilisation appears to be associated with fraud and illicit activities, including the movement of proceeds of crimes and scams targeting technical and financially unsophisticated investors, panel sources informed ET.

The note urges policymakers to clearly distinguish speculative crypto assets from tokenised real-world financial assets such as government securities and corporate bonds and other regulated financial instruments so that innovation in tokenisation is not inadvertently constrained while framing India's crypto policy.