The Economic Times reported that top banks have suspended some accounts of major bitcoin exchanges in India. Mint has seen a copy of one of the letters sent out to a bitcoin exchange for closure of its current account from ICICI Bank Ltd. Questions sent to ICICI Bank have not elicited a response. Other bitcoin exchanges too have got letters of closure from some banks. “We have got letters. I have seen the letters and they (banks) say ‘we feel this is risky’. That is the risk perception that the bankers are taking,” said Ajeet Khurana, head, Blockchain and Cryptocurrency Committee of India (BACC), a self-regulated organization.
Why are banks shutting the accounts?
According to Khurana, banks in other countries too are closing accounts of bitcoin exchanges. “Some bankers have told me that this is now the international standard. I think the banks (individually) are taking this decision. Many of these bankers had first approached us because there was a lot of money coming in. Interestingly, the banks are using the same risk management and anti-money laundering (AML) software and probably their internal guidelines have flagged something. I think the RBI’s (Reserve Bank of India) cautionary messages are being misread. Every time we have spoken to the RBI, it has said that it has not asked banks to shut accounts,” said Khurana. Since 2013, the RBI has sent out three cautionary notes to users and traders of bitcoin and other cryptocurrencies.
When banks closed down the accounts of cryptocurrency exchanges, it had an impact on the transactions, which slowed down. “For exchanges with one banking relationship, this is causing a lot of hardship. A lot of the exchanges are processing 10,000-20,000 transactions a day. Bitcoin exchanges don’t want to go to smaller banks where the bank becomes a risk factor,” said Khurana.
However, some exchanges have denied any such development. “We currently have HDFC Bank Ltd and RBL Bank Ltd. Both bank accounts are functional,” said Jincy Samuel, chief operating officer, Coinsecure, a bitcoin exchange company. Coinsecure had terminated its banking services with other banks due to operations issues, said Samuel.
Some cryptocurrency experts say that due to recent developments on the banking front, there is a possibility that you will see an increase in transactions from one cryptocurrency to another, rather than to fiat currency. For instance, bitcoin may see more transactions with ethereum or litecoin more than, say, Indian rupee. “Does it make sense for exchanges to move to crypto-to-crypto transactions? Let’s say bitcoin is going to be termed illegal or you can’t trade in it. Then maybe a cryptocurrency-to-cryptocurrency trading makes sense. You are not touching the Indian rupee. So, it doesn’t matter whether someone is trading in bitcoin or litecoin,” said Samuel. However, if the idea of trading in bitcoins is to cash out, then this will not make sense. “It makes sense if you are going to make a payment in cryptocurrency. But I don’t see that happening in India at least for the next 10-15 years, unless the government comes with regulations that are pro-bitcoins. Crypto-to-crypto transactions are happening even now. If someone wants to buy ethereum and the prices are favourable on an international exchange, then people can use bitcoins to buy ethereum,” said Samuel. As users it would be advisable to tread with caution in bitcoins and other cryptocurrencies.