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India’s RBI Tightens Crypto Warning, Wants Banks Kept Away From Digital Assets

The central bank urged a strict containment approach for cryptocurrencies as a parliamentary panel gathered inputs to frame recommendations on India's future virtual digital assets policy.

Saravana Kumar Mahendran by Saravana Kumar Mahendran
July 3, 2026
in Market Updates
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RBI Pushes for Strict Crypto Containment as Parliament Prepares Policy Roadmap

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The Reserve Bank of India (RBI) has reiterated its cautious stance on private cryptocurrencies, urging lawmakers to shield the formal banking system from exposure to digital assets while keeping the option of a full prohibition on the table.

RBI Deputy Governor Rohit Jain and Executive Director P. Vasudevan presented the central bank’s position to the Parliamentary Standing Committee on Finance. According to The Economic Times, the RBI advocated a “containment strategy” that would prevent banks and regulated financial institutions from dealing with cryptocurrencies and privately issued stablecoins.

The central bank emphasised that prohibition remains a recognised policy option under international frameworks. It warned that applying conventional regulatory frameworks to crypto assets could inadvertently legitimise highly speculative instruments and create a false sense of security among retail investors.

Distinguishing Tokenisation from Speculative Crypto

While maintaining a hard line on unregulated crypto, the RBI drew a distinction with regulated tokenisation of government securities and corporate bonds. Officials suggested that policy measures should not hinder innovation in tokenised financial instruments backed by real assets.

This position aligns with the RBI’s long-standing concerns about financial stability, money laundering risks, and the potential impact on monetary policy transmission. The government’s recent decision to block Polymarket in India as it targets prediction market platforms further reflects this cautious approach towards certain crypto activities.

Multi-Layered Regulatory Approach Already in Place

India’s current framework for Virtual Digital Assets (VDAs) relies heavily on taxation and anti-money laundering (AML) oversight. Since 2022, income from the transfer of VDAs has been taxed at a flat 30% under Section 115BBH of the Income Tax Act, with no allowance for setting off losses against other income. A 1% Tax Deducted at Source (TDS) applies to most transfers. The 2026 Union Budget left these rates unchanged while introducing stricter reporting penalties.

On the AML front, the Financial Intelligence Unit-India (FIU-IND) has brought VDA service providers under the Prevention of Money Laundering Act (PMLA). As of the latest data, 54 crypto service providers have registered with the FIU-IND. Official AML and CFT guidelines for the sector were updated in January 2026. These measures are clearly visible in the market, where tight supply of USDT has led to rising stablecoin premiums in India.

Historical Context and Banking Ring-Fencing

The RBI’s latest position echoes its 2018 circular that prohibited all regulated entities, including banks, NBFCs, and payment system providers, from dealing in virtual currencies or providing any services to entities involved in crypto trading. This move effectively ring-fenced the formal banking system from the crypto ecosystem.

The 2018 circular was later struck down by the Supreme Court in March 2020. Despite the ruling, the RBI has continued to discourage banks from extending services to the crypto sector through cautionary advisories and supervisory measures. Regulated entities must still adhere to KYC, AML, and foreign exchange compliance norms.

What Lies Ahead

The Parliamentary Standing Committee on Finance, chaired by BJP MP Bhartruhari Mahtab, is preparing a report on the way forward for Virtual Digital Assets. The full report is expected soon.

While India continues to show strong retail interest in crypto, policymakers are balancing innovation, investor protection, and systemic risk mitigation. For now, the approach remains one of containment through taxation, AML enforcement, and banking isolation. Enforcement actions, including the impact of the Telegram ban on crypto trading, continue to influence how users engage with the ecosystem.

No immediate policy changes were announced following the July 2 meeting. The government continues to monitor developments while advancing its own digital rupee (e₹) pilot under the RBI.

Disclaimer: Cryip's content is strictly for educational and informational purposes and does not constitute financial, legal, or investment advice. Cryptocurrency involves significant risk, and readers assume full responsibility for their own financial decisions. Asset references are never endorsements.

To make complex crypto topics accessible to readers at all experience levels, our team uses AI tools strictly to refine language, correct grammar, and simplify terminology. AI is never used to draft facts, source information, or form conclusions. Every article is fact-checked and approved by a human editor before publication. Read our full AI Use & Content Policy.

Tags: IndiaRegulation
Saravana Kumar Mahendran

Saravana Kumar Mahendran

Saravana Kumar Mahendran is a crypto security analyst and blockchain researcher at Cryip, focusing on DeFi protocol exploits, Web3 security systems, and on-chain investigation. His research applies OSINT and fact-checking methodology to security incidents, drawing on certifications in cybersecurity and data analytics (LinkedIn Learning), and DeFi deep-dive training (Binance Academy). His work has been cited by Sherlock, Rekt.news, and Halborn Security.

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