According to Reuters, crypto trading platforms in India are still having a hard time opening accounts with financial institutions. This makes it more difficult for them to operate in the country.
Banks are still holding back from working together with crypto exchanges
Despite the fact that cryptocurrencies are not officially banned in India, banks are still avoiding cryptocurrency exchanges. It seems they have decided to do so because of the advice given by the Reserve Bank of India (RBI).
Back in March, the RBI said it would be taking a “calibrated position” on a cryptocurrency ban. India’s Supreme Court lifted an earlier RBI rule that prevented banks from offering account services to crypto trading platforms.
While there is no ban in India to offer payment services to cryptocurrency exchanges, customer complaints have flooded all major Indian exchanges because their clients are unable to withdraw using mainstream payment methods.
Due to ongoing issues with traditional payment methods, partnering with payment processing companies is becoming a suitable stop-gap measure. This has allowed platforms that still want to offer cryptocurrency services to their customers to continue to do so.
There are already smaller payment methods in India that offer instant transfer services for exchanges. One of these services is the Mumbai-based payment processor, Airpay.
Airpay reportedly delivers its services to Coinswitch and Binance-owned WazirX. However, given India’s estimated 15 million cryptocurrency investors, such payment channels are not optimised to provide services on a large scale and can end up being insufficient.
Exchanges using these methods can face downtimes
To get a handle on the situation, major platforms like WazirX have to stop crypto/fiat trading on certain days, and only offer peer-to-peer (P2P) transactions. Some other exchanges are reportedly resorting to manual settlements for bank deposits and withdrawals. Others, such as Bitbns, have created their own basic payment processor that enables some essential transactions, as the systems do not require prior approval from the Reserve Bank of India, the central bank.
Crypto exchange stakeholders state that relying on P2P channels and other alternative trading methods comes with a higher risk to the customer and can expose them to fraudulent activity.