After almost eight months of payment freeze by most high-street banks that continue to shun crypto investors and bourses, Kotak Bank will do business with WazirX, one of the country's largest crypto exchanges.
According to industry sources, some of the large banks are unaware that many customers - notwithstanding the institutions' strictures to payment gateway and processing firms to curb crypto-linked payments - are using the bank accounts to buy or sell cryptos.
Mumbai: Amid a growing perception that cryptocurrencies could be 'regulated' and not banned in India, Kotak has emerged as the first major bank to open its doors to the crypto community.
After almost eight months of payment freeze by most high-street banks that continue to shun crypto investors and bourses, Kotak Bank will do business with WazirX, one of the country's largest crypto exchanges.
"WazirX has opened an account with Kotak which can be used to receive and pay money to investors trading on the exchange. The account is yet to become operational. Paperwork, KYC and some testing are on," a person aware of the matter told ET.
About a year ago, WazirX closed its account with ICICI Bank, India's second-largest private lender following feelers from the Reserve Bank India which has always been (and continues to be sceptical of cryptocurrencies). A bulk of WazirX's business shifted to MobiKwik, a digital wallet and payment services company.
As the industry sensed the discomfort of the regulator, more and more large banks, including HDFC Bank, Axis, and SBI restricted payments involving crypto platforms and vendors.
In May, ICICI told payment gateway operators to deactivate ICICI Netbanking for merchants who were involved in buying or selling cryptos directly or indirectly. Payment gateway firms, acting as third parties, are the link for transferring funds from a customer's bank account to the payment portal of merchants. In August, the country's largest lender State Bank of India (SBI) told payment processors to disable 'SBI UPI' for crypto merchants - thus, blocking the receipt of funds by crypto bourses on its UPI platform.
Though crypto investments are minuscule in comparison to other financial assets, cryptocurrencies could emerge as a new and growing asset class if the government, which is working on a new law, eventually allows local trading of select cryptocurrencies. Kotak, betting on the possibility, wants a piece of that action. The bank is also warming up to the trade and has been in touch with other crypto exchanges like Zebpay.
A Kotak Bank spokesperson declined to comment on the matter.
In 2018 RBI had banned banks from facilitating payments for transactions linked to cryptocurrencies - a directive that was set aside by the Supreme Court in March 2020.
"Post RBI clarifying to banks in May this year that they cannot cite the 2018 order as it was set aside by the Supreme Court, banks were free to engage with the cryptocurrency ecosystem. Since then banks have been permitted to engage provided they undertake necessary due diligence processes around KYC, AML, CFT, PMLA, FEMA, besides looking at their own financial health and risk exposures. Hence banks who have done this homework would typically be free to engage with the industry," said Rameesh Kailasam, CEO of the industry lobby IndiaTech.org and author of the white paper on cryptos.
However, various banks have interpreted the RBI communique differently and most lenders are yet to resume their relationships with crypto exchanges. Also, officials and relationship managers of most banks discourage customers from putting money in cryptos - an investment from which the banks receive no commission.
According to industry sources, some of the large banks are unaware that many customers - notwithstanding the institutions' strictures to payment gateway and processing firms to curb crypto-linked payments - are using the bank accounts to buy or sell cryptos. Here, the payment processing firm, acting as an aggregator, on-boards a crypto platform to facilitate payments while keeping the bank in the dark. "Some of the exchanges use the virtual payment address of the aggregator and the bank may never come to know that the counterparty is a crypto platform," said a senior official with one of the payment intermediaries.
"The aggregator may believe that it need not go back to the bank every time it brings in a new client - particularly if there is nothing in writing from the bank. These are surreptitious ways to get business. For clarity, the payments industry will have to wait till the Bill and subsequent regulations are passed," said a banker.
About a year ago, WazirX closed its account with ICICI Bank, India's second-largest private lender following feelers from the Reserve Bank India which has always been (and continues to be sceptical of cryptocurrencies). A bulk of WazirX's business shifted to MobiKwik, a digital wallet and payment services company.
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