Why India’s Central Bank Wants Crypto Out of the Banking System?

India’s central bank wants lawmakers to wall off the banking sector from crypto. The Reserve Bank of India (RBI) told a parliamentary panel that digital assets should not serve as payment instruments.

The Parliamentary Standing Committee on Finance heard the testimony for its study on virtual digital assets. Lawmakers plan to table the report during the monsoon session.

Central Bank Pitches Crypto Containment in India

Committee members said the RBI argued for a containment strategy, not a conventional rulebook. The central bank believes formal regulation could legitimize speculative assets. It warned that clear rules might give retail investors a false perception of safety.

Officials repeated long-standing concerns about illicit finance. They cited risks tied to drug trafficking and terror funding. Similar central bank warnings have appeared in other emerging markets this year.

The stance revives a fight the RBI lost in 2020, when the Supreme Court struck down its banking ban. This time, the central bank wants Parliament to write the separation into law.

No Payments and No Direct Bank Exposure

The RBI advised lawmakers to prohibit crypto for payments and settlements. The bank wants tight limits on direct banking-sector exposure to digital assets. The advice mirrors the caution found in several global regulatory frameworks, although most jurisdictions now prefer licensing over isolation. Washington set its own boundary in June, when senators passed a US CBDC ban lasting through 2030.

Committee members pushed back during the hearing. They questioned how India can ignore capital flight while Indonesia, Hong Kong, and the UAE regulate the sector. India ranked first in the 2025 Global Crypto Adoption Index, ahead of the US and Pakistan.

2025 Global Crypto Adoption Index. Source: Chainalysis

However, the officials offered a blunt reply.

“Not having a policy is also a policy,” RBI officials said, according to a committee member quoted by Business Standard.

Meanwhile, the Securities and Exchange Board of India (SEBI) earlier signaled it could regulate tokens classified as securities. The RBI declined to answer that question and promised a written response.

Tokenized Bonds Stay on a Separate Track

The proposal draws a line between cryptocurrencies and tokenized government securities. Growing tokenized bond markets would keep room to develop on a regulated infrastructure. The restriction targets speculation, not blockchain technology itself.

Still, India’s crypto investors face a 30% tax and a 1% levy on every trade. Industry voices keep lobbying for a softer line, including a domestic Bitcoin mining push as an alternative to gold imports.

The panel meets the Department of Economic Affairs on July 15 before it finalizes recommendations. The coming weeks should reveal whether Parliament backs isolation or an EU-style framework such as MiCA.

The post Why India’s Central Bank Wants Crypto Out of the Banking System? appeared first on BeInCrypto.