Banks seek formal NPCI note on crypto UPI curbs

Mumbai: Questioning the `shadow ban’ on cryptocurrencies, leading banks have asked the umbrella institution National Payments Corporation of India (NPCI) to spell out in a formal directive the curbs on the use of the popular money transfer tool ‘Unified Payment Interface’ to buy and sell the virtual digital assets (VDAs).

Several banks have grudgingly blocked UPI for trading of cryptos following “verbal instructions” from NPCI which operates retail payments and settlement systems in the country.

The banks, some of which are shareholders of NPCI, raised the issue at a recent meeting after the payments body expressed its reservations a few weeks ago on the fund flows through UPI for crypto trades, two persons aware of the discussions in the meeting told ET.


UPI allows a bank account holder to send and receive money from their smartphones without the need to enter bank account information or net banking user ID and password.

A formal communique from NPCI, however, seems unlikely any time soon. An NPCI official told ET that there are “no intentions of any circular”.

According to senior bankers and members of the crypto community, NPCI’s reluctance probably stems from the legal complications that an official ban could result in. “If there is a formal circular to ban UPI for cryptos or VDAs, whatever is the nomenclature, the crypto industry in all likelihood would legally contest it --- as they had done when RBI imposed a ban in April 2018,” said a banker.

The ban was lifted in March 2020 when the Supreme Court set aside the RBI circular that prevented banks from letting customers use their bank accounts to pay or receive funds on account of trading of cryptocurrencies --- a ruling that emboldened crypto exchanges and intermediaries, and triggered the crypto-rush in India.

“We didn’t quite understand NPCI’s decision. While it informally restricted UPI (for crypto trades), it’s silent on IMPS..This point was also raised by someone at the meeting,” said a banker. IMPS (or, immediate payment service) is a real time payment service offered by NPCI.

“So, one may wonder whether IMPS can be used to transfer money to a crypto platform? We have no clarity, though I have a more fundamental question: Is NPCI authorised to impose an informal ban on UPI when the payment framework is governed by the Reserve Bank of India (RBI),” said the banker.

NPCI, set up at the initiative of RBI and the industry body Indian Banks’ Association under the provisions of the Payment and Settlement Systems Act, 2007, is a ‘not for profit’ company.

While RBI too has refrained from issuing anything in black and white --- probably held back by the apex court verdict ---- the regulator has over the past one year made its opposition to cryptocurrencies abundantly clear in various speeches given by senior central bank officials. Like many banks, NPCI, which had earlier refused to block fund movements for crypto trades, developed a cold feet amid signals from the regulator. Today, NPCI’s stand is borne out by what its senior official said: “I believe legitimization is necessary before use of any payment system.”

Under the circumstances, crypto platforms are resorting to less efficient ways like peer-to-peer trades (with the platform sharing sellers’ details to buyers) and direct transfers to keep their shops open even as volumes dip.