After the recent episode of UPI payment freezing on cryptocurrency transactions, leading Indian banks have asked for a formal directive from NPCI on the curbs on using UPI payment method for buying and selling virtual digital assets, The Economic Times reported.
NPCI owns and operates the UPI and approves the participation of customer banks, payment service provider, third party application providers and prepaid payment instrument issuers (PPIs) in UPI.
According to the report, the banks, some of which are shareholders of NPCI, raised the issue at a recent meeting. However, it is unlikely that NPCI would issue any such circular soon, it said.
The payment issue with using UPI for crypto transactions started in India after an executive of global crypto exchange Coinbase announced that it would accept UPI payments.
Soon after, NPCI issued a statement on the issue saying, “With reference to some media reports around the purchase of cryptocurrencies using UPI, National Payments Corporation of India (NPCI) would like to clarify that we are not aware of any crypto exchange using UPI.”
After NPCI’s clarification, all major crypto exchanges in India disabled INR deposits via UPI. In addition, major Indian banks also reportedly stopped all netbanking options for crypto transactions.
During the April 7-14 period, the trading volumes of the exchanges declined by nearly 60% on an average as compared to the pre-tax days. To prevent the bloodbath, the exchanges started facilitating peer-to-peer (P2P) deals.
In the backdrop of the recent developments, experts in the industry believe that the regulatory uncertainty will continue to impact the industry. The Indian government has not made its position clear on the issue yet, but Sitharaman called for global crypto regulations in her address at the International Monetary Forum (IMF) in Washington DC last week.
“I think the biggest risk for all countries across the board will be the money laundering aspect and also the aspect of (crypto) currency being used for financing terror,” she said.