From IPL ads to Dogecoin frenzy, Promoter of 'informal' curbs on crypto exchanges

From IPL ads to Dogecoin frenzy, Promoter of 'informal' curbs on crypto exchanges

Indian banks imposed “informal restrictions” on cryptocurrency trading after concerns surfaced around money laundering at Indian crypto exchanges, the Dogecoin frenzy amid investors and succeeding an aggressive marketing push through repeated TV ads during the Indian Premier League (IPL), multiple industry sources.

Early this month the leading banks remarkably private sector lenders, ICICI Bank and IndusInd Bank, have demanded payment gateway partners to stop processing such transactions. Others Banks such as HDFC Bank, Yes Bank, State Bank of India and Kotak Mahindra Bank had been declining these transactions even earlier.

The past few weeks, crypto platforms in India have been blocked by all major payment gateway services providers from processing payments, on the instructions of lenders such as ICICI Bank.

Several crypto platforms lost the power to accept rupee deposits through banking channels NEFT, IMPS, and RTGS, as well as the Unified Payments Interface.

Banks and the industry sources indicated that it has stopped issuing merchant IDs to payment gateways and have requested these intermediaries to tighten scrutiny while dealing with cryptocurrency exchanges in India. Insiders from the banking industry indicated out that these constraints could be due to informal instructions by the Reserve Bank of India (RBI) to the banks urging tougher compliance with existing money laundering laws.

None of the banks or gateways have, however, issued any written instructions stating the logic behind these curbs, triggering confusion in the country’s nascent cryptocurrency industry. “Since there have been no formal instructions or circular issued by the RBI, you can't even protest,” industry source stated. “It's like a sort of stealth way of creating issues for crypto exchanges, which is very unfortunate.”

Notice of court order

Crypto platforms for their role, they’re within the process of sending a communication to all major banks about the Supreme Court ruling of February 2020 that cancelled the banking outlaw and declared that the central bank cannot provide any formal guidelines or directly regulate these exchanges.

RBI did not act in response to an email seeking comment till the time of going to press. Crypto industry official stated, “ They are planning to first send letters to banks informing them about the Supreme Court order so that they’re formally made aware of the court’s ruling.” The most major lenders, such as HDFC Bank and Kotak Mahindra Bank, had stopped working with crypto platforms despite the apex court’s order, Banks of all sizes too have found themselves in revived pressure to not participate with crypto platforms in recent months. In the current scenario, cryptocurrency exchanges are availing the services of private wallets and smaller banks to retain business continuity.

Multiple sources in the know said, that RBI has issued informal instructions to banks as the crypto ecosystem is growing without any regulatory oversight.

According to the sources, the aggressive marketing push by crypto exchanges on TV during the IPL is one of the most watched programs on television. OTT channels and social media influencers has instigated the regulator to clamp down as the industry is not licensed in India.

An executive at a payment gateway said. That they have reached out to all our cryptocurrency clients on the instruction of our partner bank to enquire about their arbitrage settlement process, they want to ensure that due compliance is supported with anti-money laundering rules. This is a lucrative business for us, but chargeback fees in the event of frauds fall on banks and PGs (payment gateways), which are rather high.” Citing examples of crypto exchange frauds in Turkey and Estonia in recent years, have led cryptocurrency to remain under supervision risk unless the government drafts a formal law.

Transparent release

In the meantime the crypto exchanges are aware of tightening scrutiny by banking partners, they have been transparent in their disclosures and customer onboardings. Some of the steps to self-regulate involve staying away from terms like “trade” and “astronomical returns” in their marketing initiatives. In addition, the several crypto platforms say they provide a disclaimer in every advertisement at the end to educate customers about the unregulated nature of the industry. Ramalingam Subramanian, chief marketing officer at CoinDCX stated, as self-regulation, we put out a message that it is a volatile market and one should enter it with caution.

Sharan Nair, the chief business officer of Coinswitch Kuber, stated, which advertised aggressively during the IPL, that on top of strict internal checks, external parties responsible for broadcasting the advertisement took legal permissions earlier to picture of the ads during the cricket series. Legal experts also stated, advertising and marketing cryptocurrency is not at all illegal in India.

Akshay Nagpal, Partner, L&L Partners, stated, Below the Cable Television Network Rules any advertisement on cable services cannot be in breach of law. Meanwhile the top court’s decision on crypto-currency, trading of crypto-currency is not illegal or in breach of law till parliament legislates on it. So, it seems there is no bar on advertisement of crypto-currency or its trading.

According to the Rahul Goel, Partner at AnantLaw, the government has not yet proclaimed cryptocurrency as an illegal instrument of payment. “In fact, the change in Company Law requires disclosure. So, anything which is illegal or prohibited under the law can’t be advertised, as a matter of fact, Air India’s official in-flight magazine is used to have advertisements of the cryptocurrency.

Doge-day upshot

Sources pointed out that the growing popularity of Dogecoin in India has also been a key concern for the banking regulators. Dogecoin a meme token in unlimited supply supported by electric vehicle maker Tesla’s founder Elon Musk is known for its volatility and is being viewed by several Indian traders as a way of gaining quick returns through intraday trading through these exchanges.

Dogecoin trading volumes from India have more than tripled since April and platforms have witnessed record-breaking transaction volumes, according to a payment industry source monitoring these transactions. On May 8th, The Elon Musk’s presence on an American TV show, which was told to be pushing up its price token, major crypto exchanges like CoinDCX, WazirX, and Tiger Global-backed Coinswitch Kuber lost access to direct bank deposits and instant bank transfer.

“Due to congestion issues on our Banking Partner’s network, Instant IMPS, NEFT, RTGS options are currently not available,” CoinDCX wrote in an advisory to the customers on its app CoinDCX GO. Coinswitch Kuber declared the pronouncement on Twitter, “That we have halted INR deposits temporarily as there is a problem from our banking partner’s side.” Despite dropping critical banking access, exchanges seen high volumes of Doge-INR trading.

For instance, users on WazirX, which is surviving on peer-to-peer transfers, traded Dogecoin worth Rs 820 crore on May 9. According to WazirX, the banking partner issue was resolved and the partner was rolling out access in batches.

Coinswitch Kuber's Doge trading volumes crossed over Rs 600 crore on the same day. Most crypto exchanges have partners or self-driven education programs to teach retail investors about crypto. CoinDCX told, it has strict internal compliances in place and only list tokens that meet certain standards and are compliant with local laws to protect retail investors. According to a CoinDCX spokesperson, Doge met the threshold.