India’s SEBI embraces crypto regulation while RBI remains cautious

India’s market regulator, the Securities and Exchange Board of India (SEBI), has suggested that several regulators oversee cryptocurrency trading, indicating that some authorities in the country are open to the use of private virtual assets.

This position is at odds with that of the Reserve Bank of India (RBI), which views private digital currencies as a macroeconomic risk. The two sets of documents, reviewed by Reuters, were submitted to a government committee tasked with formulating Finance Ministry policy. SEBI’s position marks a significant development, as it had not been reported before.

Historical context and government actions

Since 2018, India has maintained a strict stance against cryptocurrencies. At the time, the central bank banned lenders and other financial intermediaries from dealing with cryptocurrency users or exchanges, a decision later overturned by the Supreme Court. In 2021, the government drafted a bill to ban private cryptocurrencies, although it has not yet been introduced. Last year, under the G20 presidency, the Ministry of Finance led efforts to build a global consensus on crypto.

An official mentioned that India would finalize its own stance on crypto in the coming months. Recently, another ministry official noted that the registration of more than 46 crypto-related companies with the country’s financial intelligence unit signals a shift in credibility, although policymakers still determine legitimacy.

Amid the ongoing national elections, the results of which are expected on June 4, Jayant Sinha, chairman of the parliamentary standing committee on finance, said in December that a legislative bill specific to crypto or Web3 was unlikely before mid-2025. The RBI, in favor of banning stablecoins, remains firm in its stance, as confirmed by a person familiar with the panel discussions. The report on this issue is expected in June. Stablecoins, designed to maintain a constant exchange rate with fiat currencies, are considered less volatile than other cryptocurrencies.

SEBI recommendations

In its submissions, SEBI recommended that different regulators should supervise cryptocurrency-related activities in their respective areas, thereby avoiding a single, unified system. regulator for digital assets. SEBI has proposed monitoring cryptocurrencies that resemble securities and initial coin offerings (ICOs) and issuing licenses for stock market-related products. This mirrors the US approach, where the Securities and Exchange Commission oversees tokens and crypto exchanges classified as securities.

For crypto assets backed by fiat currencies, SEBI has suggested regulation by the RBI. Additionally, the Insurance Regulatory and Development Authority of India (IRDAI) and the Pension Fund Regulatory and Development Authority (PFRDA) are expected to regulate virtual assets related to insurance and pensions. SEBI has also recommended that investor grievances related to cryptocurrency trading be resolved under the Indian Consumer Protection Act.

Fiscal policy risks highlighted by the RBI

In its documents, the RBI highlighted the fiscal policy risks associated with cryptocurrencies. He highlighted potential tax evasion and reliance on voluntary compliance for decentralized peer-to-peer (P2P) activities, which pose risks to fiscal stability. The RBI has also expressed concerns about the loss of seigniorage revenue, the profits earned by a central bank from money creation.

After the 2018 RBI orders were overturned by the Supreme Court, the central bank asked financial institutions to strictly comply with anti-money laundering and foreign exchange rules, thereby keeping cryptocurrencies out of of the Indian formal financial system. Despite these restrictions, cryptocurrency trading has continued to thrive. In 2022, the government introduced a tax on crypto transactions to discourage such trading and made local registration mandatory for all exchanges facilitating crypto transactions in the country.

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