India’s central bank is weighing a policy approach aimed at containing crypto activity—particularly by limiting how banks and regulated financial institutions interact with digital assets and privately issued stablecoins—according to a report by The Economic Times. The stance is expected to feed into a broader review of the country’s digital asset framework as lawmakers prepare a report.
In a background note reviewed by a Parliamentary Standing Committee on Finance, RBI officials presented what the publication describes as a renewed emphasis on preventing crypto from being used in payments and settlements, while keeping the banking sector’s exposure controlled. The same materials reportedly argue that simply applying “traditional” regulation to crypto could inadvertently legitimize speculative assets and create a misleading sense of safety for users, though the RBI also urged policymakers to differentiate crypto from tokenized instruments that are already regulated.
Key takeaways
- The RBI’s reported position favors “containment” of crypto—especially by limiting banking-sector involvement—rather than a blanket ban on ownership.
- Officials reportedly reiterated support for prohibiting crypto use in payments and settlements to reduce systemic exposure to digital assets and private stablecoins.
- The RBI cautioned that treating crypto like conventional regulated products could confer unwarranted legitimacy to speculative tokens.
- At the same time, the RBI urged regulators not to conflate crypto with tokenized government securities or corporate bonds.
- India’s crypto adoption profile remains a point of contention, with Chainalysis placing India first in its 2025 Global Crypto Adoption Index while the RBI reportedly challenged the methodology.
Containment strategy and the RBI’s policy logic
According to The Economic Times, RBI Deputy Governor Rohit Jain and Executive Director P. Vasudevan shared the central bank’s views with the Parliamentary Standing Committee on Finance on Thursday. The submission reportedly lays out a policy framework in which outright prohibition remains “a recognized policy option,” but the operational thrust is to restrict crypto’s role in core financial functions—namely payments and settlements.
The RBI’s reported concern is that banks and other institutions could become conduits for risk if they are allowed to directly facilitate crypto transactions or hold exposure to privately issued stablecoins. In the background note, the central bank reportedly recommended policies that prevent crypto usage in payments and settlements while limiting the degree to which the banking system is exposed to digital asset activities.
That position also includes a caution about regulatory design. The RBI reportedly warned that applying established regulatory approaches meant for conventional financial instruments to crypto assets could end up legitimizing speculative tokens. The central bank’s argument, as described in the report, is that such an approach could create a “false perception of safety” among users.
Still, the RBI reportedly made an important distinction: policymakers should separate crypto from tokenized government securities, corporate bonds, and other regulated financial products. The practical implication is that the RBI appears to support tokenization where the underlying instrument is already within a regulated perimeter—while treating “crypto” broadly and its speculative use cases as a different category of risk.
How this echoes the RBI’s 2018 playbook
The reported containment push aligns with an approach the RBI used in 2018. At that time, the central bank directed regulated financial institutions to stop dealing in crypto or providing services to people and entities involved in crypto, effectively severing many crypto exchanges from India’s banking rails without banning individuals from holding or trading crypto.
That policy path was challenged and ultimately overturned. India’s Supreme Court overturned the circular in March 2020. In doing so, the court recognized the RBI’s authority to take preventive measures but concluded that the approach did not meet the “proportionality” standard—specifically noting the RBI had not demonstrated the harm experienced by the regulated entities affected by the measure.
In May 2021, the RBI clarified that banks could not cite the invalidated circular when advising customers against crypto transactions. However, the RBI also indicated that regulated institutions could continue applying know-your-customer (KYC), anti-money laundering (AML), and foreign-exchange compliance requirements, preserving compliance practices even as the earlier, more direct restriction was removed.
The key difference suggested by the latest reported submissions is framing: the RBI appears to be arguing for a policy model that limits crypto’s access to payments and settlement functions and constrains banking exposure, rather than relying purely on an exchange-banking cutoff. Whether Parliament and regulators can craft such a framework without running into the same proportionality objections that surfaced in 2020 is likely to be one of the central questions as the policy debate progresses.
Tokenization vs. “speculative” crypto
One of the more consequential aspects of the RBI’s reported position is its insistence on separation. The central bank reportedly warned against regulating crypto in a way that treats it as if it were equivalent to established financial instruments. At the same time, it urged policymakers to distinguish crypto assets from tokenized government securities and corporate bonds—categories that, in principle, sit closer to regulated capital markets.
For investors and market participants, this distinction matters because tokenization is often viewed as a potential bridge between traditional finance and distributed ledger technology. If regulators accept the argument that tokenized regulated instruments should not be blocked simply because they use similar technical formats, tokenization could evolve within a more familiar compliance environment. Conversely, if policymakers adopt a broad-brush approach, the same infrastructure could face tighter constraints even when the underlying asset is regulated.
In practical terms, what changes from this position is the emphasis on “use” and “function.” Rather than focusing only on who owns or trades tokens, the RBI’s reported approach appears more concerned with where crypto can be used (payments and settlements) and how much it can permeate the banking system—areas that policymakers can target without necessarily prohibiting market participation outright.
Adoption metrics under scrutiny
The RBI’s stance also intersects with discussions about India’s crypto adoption level. The report notes that India was ranked first in Chainalysis’ 2025 Global Crypto Adoption Index, though the RBI reportedly challenged the methodology behind private-sector adoption rankings.
This disagreement signals that, even as adoption becomes a key input into policy arguments, there is still no shared view of how adoption should be measured or interpreted. For lawmakers considering regulation, the takeaway is that adoption numbers may not settle the debate by themselves; policymakers will likely scrutinize both metric design and what those metrics truly indicate about user protection, financial stability risks, and the degree of institutional involvement.
With India’s regulatory framework still under review, readers should watch closely for how policymakers translate the RBI’s reported containment ideas into concrete rules—particularly around payments and settlement use cases, banking-sector permissible activities, and how regulators draw boundaries between tokenized regulated instruments and broader “crypto” categories.
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