CoinSwitch Kuber, one of India’s biggest crypto exchanges, on Tuesday halted all deposits of Indian rupees on its platform in what appears to be a broader trend among the country's crypto trading platforms.
The involuntary step occurred when Kotak Mahindra Bank stopped providing its services for trades, at least four different sources from India's crypto industry and institutions told CoinDesk.
It's not clear yet what was behind the move as Kotak has yet to comment on the matter.
The threat of an additional indirect tax has added to the concerns about the future of crypto in India. An increasing brain drain of talent and entrepreneurs threatens to be further exacerbated by the latest development, and data suggests that the blows on the crypto scene have caused trading volumes to plummet. And there is no sight of regulatory certainty in the form of a crypto-specific bill. Thus, the latest issues appear to threaten the industry's very survival according to analysts.
Payment providers an obstacle
The issues appear to stem from Indian crypto exchanges’ relationships with local payment providers. Payment gateways such as MobiKwik stopped supporting exchanges at the beginning of this month. Multiple industry sources said that was because MobiKwik needed time to comply with the new tax law.
WazirX, India’s biggest crypto exchange, confirmed that MobiKwik pulled out on April 1.
BuyUcoin, another crypto exchange, also said MobiKwik stopped providing its payment services.
“We had MobiKwik as a partner. They were partners for a long time, two to three years time. Now, they temporarily stopped all the services,” said Atulya Bhatt, co-founder and chief marketing officer of BuyUcoin.
MobiKwik didn't immediately respond to a request for comment.
Last week, Coinbase (COIN), the world’s largest listed crypto exchange, announced it was starting trading in India with a bit of pomp and circumstance – the launch included Bollywood songs and more.
At a launch event, Coinbase executives touted how easy it would be trade on the Coinbase app with payments for the trades being processed by Unified Payments Interface, or UPI, a widely used payments system in India.
Shortly after the event, however, the National Payments Corporation of India (NPCI), the entity that governs UPI, tweeted to clarify that it was “not aware of any crypto exchange using UPI.”
NPCI is regulated by the Reserve Bank of India (RBI), the country's central bank, which has taken an anti-crypto stance. In February, T. Rabi Shankar, a deputy governor at the bank, said that “banning cryptocurrency is perhaps the most advisable choice open to India.”
After the NPCI tweet, a Coinbase spokesperson said the company is “experimenting with a number of payment methods.”
“One of these methods is UPI, a simple-to-use and rapid payment system. We are aware of the recent statement published by NPCI regarding the use of UPI by cryptocurrency exchanges. We are committed to working with NPCI and other relevant authorities to ensure we are aligned with local expectations and industry norms," the spokesperson added.
Three days after the launch, Coinbase payment services became “temporarily unavailable" on its app. The exchange didn't issue a new explanation or statement, and it was unclear whether the UPI services were disabled by Coinbase or by UPI itself.
At the moment, Coinbase has no payment option available and therefore all fiat deposit, withdrawal or conversion services have been halted.
“It might have worked better for Coinbase if they avoided using UPI with crypto in the same sentence. Coinbase got a taste of what Indian exchanges have been facing and struggling with since 2018,” said Aditya Singh, a co-founder of Crypto India.
Sidharth Sogani, founder and CEO of crypto research firm Crebaco, said Coinbase did nothing wrong.
"UPI is a very well structured payment system, the fastest and the world's most used. NPCI should not ask banks to stop providing services to crypto exchanges. Banks themselves don't have any problem with crypto exchanges. The crypto community had won the case in the Supreme Court against RBI. So banking is not a problem, and the same applies to UPI. Since it's a banking interface," Sogani said.
In 2020, India's Supreme Court overturned the RBI's ban on crypto in the country.
Problems for CoinSwitch Kuber
On Tuesday, deposit services became unavailable on CoinSwitch Kuber, an exchange in which Coinbase has invested millions.
An industry source not authorized to speak on the matter implied that India’s central bank – which has tried to bar banks from providing crypto exchanges services before – may be quietly influencing payment providers to cut off crypto exchanges.
“No exchange in India is withdrawing payment options voluntarily. Most of them don’t have payment options right now. So, it’s primarily an issue from either NPCI’s end or banks’ end,” said one industry source.
At least three other industry sources made the same allegation, requesting anonymity to speak frankly about a regulator with influence over their firms. Some said they feared this unproven revelation without proof could lead to a further clampdown against the industry and also said acquiring proof is nearly impossible in a situation like this.
"There has been no fresh Reserve Bank of India directive asking banks to stay away from cryptos. But senior supervisory managers (of RBI) are telling some banks to exercise caution on cryptos till there is regulatory and legal clarity," a senior official of another bank told the Economic Times.
Another source closely connected to India’s financial institutions and the government said, “I’ve seen too many big companies going downhill because of going overboard.”
“Bringing UPI into the picture was a big mistake, and so my personal take is that they [Coinbase] went out of their brief and they have been rapped on the knuckles, and that's had a ripple effect,” the source said.
In April 2018, the RBI effectively banned banks through a notification from supporting or engaging in crypto transactions. That lasted until the Supreme Court decision two years ago. Thus, it is unlikely that the RBI or the NPCI, which is governed by the RBI, would release an official edict or statement that would prompt banks and payment gateways to stop providing their services to crypto exchanges.
CoinSwitch Kuber and Coinbase both declined to comment. NPCI didn't return requests for comment.
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