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HDFC Bank withdraws its communication on cryptocurrency caution post RBI clarification

The bank had sent emails dated May 28, 2021 to some of the customers with the subject 'Caution Advice for dealing in virtual currency' probably due to the high-risk involved in such transactions.

June 04, 2021 / 08:35 AM IST
On number 5 of India’s most valuable brand is HDFC bank

On number 5 of India’s most valuable brand is HDFC bank

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The country's largest private sector lender, HDFC Bank has withdrawn its earlier communication sent to some of its customers cautioning against using the bank's services in trading in cryptocurrencies in the wake of the regulator's clarification on the matter.

The bank has now sent fresh emails to customers asking them to ignore the earlier email in view of the clarification from the Reserve Bank of India (RBI) on May 31 that the RBI's 2018 circular on virtual currencies is invalid post a Supreme Court order.

The bank had sent emails dated May 28, 2021, to some of the customers with the subject 'Caution Advice for dealing in virtual currency' probably due to the high risk involved in such transactions. However, the RBI on May 31 issued a clarification saying banks and other regulated entities cannot cite its 2018 circular on cryptocurrencies as it has been set aside by the Supreme Court (SC) in March 2020. The circular is not valid from the date of the SC order and cannot be cited or quoted from, the RBI said.

Also Read: Cryptocurrency: HDFC, SBI, other banks warn users of account suspension if trading continues

The central bank, however, asked banks to carry out the necessary customer due diligence process in line with regulations governing standards for Know Your Customer (KYC), Anti-Money Laundering (AML), Combating of Financing of Terrorism (CFT), and obligations of regulated entities under Prevention of Money Laundering Act, (PMLA), 2002.
Also, banks need to ensure compliance with relevant provisions under Foreign Exchange Management Act (FEMA) for overseas remittances, the RBI said. The RBI circular, called Customer Due Diligence for transactions in Virtual Currencies (VC),  came shortly after major Indian banks have started warning customers against using their services to trade in cryptocurrencies.

In the light of the advisory issued by the RBI, "we request you to ignore our earlier communication dated May 28, 2021," said HDFC Bank's latest email. Moneycontrol has seen one such email.

In it's earlier communication to some customers on May 28, the HDFC Bank had said that it had observed the  account reflects probable virtual currency transactions which aren’t permitted as per RBI guidelines.


The private lender told the customer to visit the nearest HDFC Bank branch and "clarify the nature of these transactions" failing which the bank will be "compelled to restrict transactions" in the account, as per a BloombergQuint report.

Similarly, State Bank of India (SBI) reminded users to be "mindful" of risks associated with cryptocurrencies and virtual currencies. "Please note, usage of credit card for transactions on virtual currency platforms may lead to suspension/cancellation of your SBI credit card," the public sector lender said in mails.

However, the RBI clarified that such references to the 2018 circular by banks/ regulated entities are not in order as this circular was set aside by the Hon’ble Supreme Court on March 04, 2020 in the matter of Writ Petition (Civil) No.528 of 2018 (Internet and Mobile Association of India v. Reserve Bank of India).

"As such, in view of the order of the Hon’ble Supreme Court, the circular is no longer valid from the date of the Supreme Court judgement, and therefore cannot be cited or quoted from," the RBI said.

Cryptocurrency is decentralised digital money, which works based on blockchain technology. Bitcoin and Ethereum are the popular crypto currencies but there are thousands of cryptocurrencies in circulation.

Even as the RBI and the Government have not formed an opinion on the cryptocurrencies, there are many Indians who have taken exposure in crypto market.  According to data from crypto exchanges, there are approximately 1.5 crore Indians who have invested in cryptocurrencies holding Rs 15,000 crore.

There are 350 startups who operate in blockchain and crypto. Crypto exchanges, WazirX, CoinSwitch Kuber and other exchanges, have seen a big rush in demand from users and crypto exchanges are advertising heavily on investments.
 While the RBI is clearly not comfortable with the idea of cryptocurrency as a medium of exchange, the government’s stance on this issue is  not clear. The government has proposed to present a Bill to regulate cryptocurrencies called The Cryptocurrency and Regulation of Official digital currency Bill, 2021.

The Bill has provisions to make any dealings in cryptocurrency illegal. But there is no clarity yet on when this Bill will be introduced in Parliament.

Dinesh Unnikrishnan
Tags: #HDFC Bank
first published: Jun 4, 2021 08:24 am

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