Leading banks have asked the umbrella institution National Payments Corporation of India (NPCI) to spell out in a formal directive the restrictions on using the popular money transfer tool ‘Unified Payment Interface’ to buy and sell virtual digital assets, questioning the “shadow ban” on cryptocurrencies (VDAs).
NPCI’s statement on the matter
Following “verbal directives” from the National Payments Corporation of India, which oversees the country’s retail payments and settlement systems, several banks have reluctantly barred UPI for crypto trading.
The banks, some of which are NPCI shareholders, addressed the matter at a recent meeting after the payments organization expressed reservations about fund transfers through UPI for crypto trading a few weeks ago, according to two people familiar with the meeting’s talks.
UPI allows bank account holders to send and receive money from their phones without having to input their bank account information or their net banking user ID and password.
A formal statement from the National Payments Corporation of India, on the other hand, does not appear to be imminent. “There are no intentions of issuing any circular,” an NPCI spokesman told ET.
The NPCI’s hesitancy, according to senior bankers and members of the crypto community, is likely due to the legal ramifications that an official ban could bring. “If there is a formal circular to ban UPI for cryptos or VDAs, whatever the nomenclature is, the crypto industry will almost certainly challenge it legally, as they did when RBI imposed a ban in April 2018,” a banker said.
The restriction was abolished in March 2020, when the Supreme Court overturned an RBI circular prohibiting banks from allowing consumers to use their bank accounts to pay or receive funds for cryptocurrency trading —- a decision that boosted crypto exchanges and intermediaries and sparked India’s crypto-rush.
“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 the National Payments Corporation of India.
“So can I use IMPS to transfer funds to a crypto platform? There is a more fundamental question, but it’s not clear. If the payment framework is managed by the Reserve Bank of India (RBI), NPCI Has the right to informally ban UPIs, “says bankers. National Payments Corporation of India was established under the terms of the Payment Systems Act of 2007, under the leadership of the RBI and the Indian Bankers Association, and is not a commercial organization.
The RBI also withheld black-and-white issuance, probably withheld by a Supreme Court ruling, but regulators have obscured opposition to cryptocurrencies in various speeches by high-ranking central bank officials over the past year. Like many banks, NPCI, which previously refused to block funds transferred for crypto trading, has calmed down in a signal from regulatory agencies.
Today, NPCI’s position is confirmed by a statement from a senior official. “I think authentication is required before using the payment system.”
In this situation, the crypto platform relies on inefficient methods such as peer-to-peer transactions (if the platform shares seller data with buyers), and Sending money directly to keep the transaction open even if the volume decreases.