Indian investors are now trying to circumvent the restrictions imposed by large banks on crypto transactions using alternative ways such as peer-to-peer transfers, according to a report by the Economic Times.
Circular of the Central Bank of India
Indian exchange have been struggling with banking problems for half a year. In May, ICICI reportedly asked payment processing platforms to block all cryptocurrency transactions.
A few days later, the payment and card services of the State Bank of India, as well as HDFC Bank, sent customers warning emails regarding cryptocurrency trading and threatened to suspend or cancel the account.
The e-mails referred to the already invalid circular of the Central Bank of India from 2018, which asked the banks to sever ties with crypto businesses. The country’s central bank issued a statement on May 31 stating that its 2018 circular was invalid because it was overturned by the Supreme Court last year.
However, the RBI did not instruct banks to resume crypto business services. On the contrary, according to a Reuters report, the RBI informally encourages banks to distance themselves from crypto exchanges, despite the Supreme Court’s order.
At the beginning of this month, when the crypto exchange WazirX reintroduced clean banking services from selected banking partners, it seemed that the problems of banks could finally disappear. Last week, however, SBI, the country’s largest public sector bank, blocked payments through its single payment method to crypto exchanges.
WazirX has also again suspended its UPI payment options for all banks. The UPI payment method allows users to transfer funds directly using an email-like payment address that is linked to bank accounts.
Against the background of persistent banking problems, Indians are increasingly looking for alternative methods, such as P2P transactions, to invest in cryptocurrencies. Other methods that have gained popularity include spot trading, trading and buying through WhatsApp and Telegram groups, and direct buying through mutual funds, according to a report by the Economic Times. These types of transactions now account for almost 80% of all exchange trading in India, the report said.
In P2P trades, exchanges function as a depository. Buyers can place orders to purchase Tether, the world’s largest stablecoin, through the P2P option using its fiat currency.
Once the purchase order is paired with the seller, the exchange holds the number of tokens in the purchase order in safekeeping, while the buyer must transfer the Fiat funds to the seller’s bank account. Once the seller confirms receipt of the payment, USDT tokens are released to the buyer. USDT tokens can then be converted by the buyer to any cryptocurrency.
In addition, the P2P method can easily overcome banking problems, because the transaction takes place directly between the buyer and the seller. However, the execution of P2P trades is a direct transaction between two parties in which the exchange is not involved. Therefore, these transactions cannot be blocked by banks.
The rise of alternative trading methods that were commonly used before the emergence of crypto exchange suggests that cryptocurrecy hunger in India is only growing, despite regulatory uncertainty. Cryptocurrencies currently fall into the gray regulatory zone in the country.
The cryptocurrency bill, which allegedly seeks to classify cryptocurrencies as commodities in the asset class, is currently awaiting approval by the Union cabinet before being submitted to parliament.