Business Today

A Body Blow

Suspension of UPI services has left several crypto exchanges in the lurch


X WHEN THE WORLD’S second-largest crypto exchange, USbased Coinbase, announced its entry into India at a big bang event in Bengaluru on April 7, it was definitely not prepared for what lay ahead. Soon after the company declared that it would allow users to purchase cryptocurr­encies using Unified Payments Interface (UPI)—an instant real-time payment system that facilitate­s inter-bank transactio­ns using a mobile phone—it came under regulatory scrutiny.

The National Payments Corporatio­n of India (NPCI), an umbrella organisati­on for operating retail payments and settlement systems in India, which oversees UPI, released an official statement clarifying that “we are not aware of any crypto exchange using UPI”. This was a strange statement, because many exchanges such as WazirX and CoinSwitch Kuber were already offering UPI services through mobile wallets such as MobiKwik. After the scrutiny, Coinbase had to disable the option of buying cryptocurr­encies using UPI.

The chaos, however, did not stop there. In the following days, UPI services for other exchanges also got disabled, following which trading volumes dipped between 60 per cent and 90 per cent on many leading exchanges. According to the website CoinGecko, trading volume on WazirX dipped to $46,801,290 on April 8, 2022, against the comparativ­e volume of $157,468,430 on March 31, 2022. WazirX, CoinDCX and Giottus did not reply to queries.

Incidental­ly, two people familiar with the matter told Business Today that, recently, MobiKwik’s applicatio­n for payment aggregator Zaakpay, which is used to power the wallet, has also been rejected by the RBI. MobiKwik is one of the popular e-wallet services on cryptocurr­ency exchanges. MobiKwik declined to comment on the developmen­t. The sudden suspension of UPI services has left the exchanges in a lurch. Exchanges are now resorting to peer-to-peer transfer of cryptos in the absence of banking services.

The experience, however, has not been uniform across the board. There are some exchanges such as Unocoin where UPI disruption has not created much of an impact. “We have not seen any decline in turnover due to UPI disruption as there are other modes of payment such as IMPS, NEFT and RTGS through which users can continue to deposit and withdraw without any disruption in services,” says Sathvik Vishwanath, Founder and CEO of Unocoin Cryptocurr­ency Exchange.

Another reason for the decline in turnover has been the imposition of a 30 per cent tax on crypto gains from April

1, 2022. The Finance Bill 2022, as passed by the Lok Sabha, has inserted a new section 115BBH to provide the method of computatio­n and the tax rate for the income arising from the transfer of Virtual Digital Assets (VDA). According to the new rules, gains from cryptos are taxable at 30 per cent, and there is no provision for setting off and carrying forward unclaimed losses.


The government and the RBI have time and again made their stand clear on cryptocurr­encies. While the government has supported blockchain technology, and not crypto per se, the RBI has shared a cautionary note about cryptocurr­ency trading in India—considerin­g it a threat to financial stability.

In tune with its philosophy, on April 6, 2018, RBI had directed all entities regulated by it to not deal in virtual currencies. Following the directive, all banks disabled their services to crypto trading platforms within three months. But things changed on March 4, 2020, when the Supreme Court of India set aside the RBI circular, spurring crypto trading in India. Within months, millions of people, especially youngsters, started flocking to this new alternativ­e investment avenue attracted by extraordin­ary returns. Then came a jolt when leading banks such as ICICI Bank, HDFC Bank and Axis Bank suddenly stopped their API services to crypto exchanges. Though there was no notificati­on from the RBI after the Supreme Court ruling in 2020, banks were informally told to stop their services to exchanges. However, a few banks and mobile wallets such as MobiKwik continued offering services to exchanges through IMPS, NEFT and UPI. Now the UPI service has come under regulatory scrutiny.

Given the intent of the regulator and the government, many digital payment solution providers have clearly stayed away from crypto exchanges. “You have the Prime Minister of our country saying that crypto poses an imminent threat and the world should come together to solve it. RBI is also very clear in its stance against crypto exchanges. Everybody agrees that crypto coins, which are being floated from abroad, have no underlying assets. Second, the Indian laws are not clear—is it a currency or an asset, and whether you’re buying these internatio­nal coins under the Liberalise­d Remittance Scheme or are you breaking any other Indian law,” says Vishwas Patel, Executive Director, Infibeam Avenues.

Patel adds, “All banks are governed by RBI. We, as an intermedia­ry and a soon-to-be licensed payment aggregator, are very clear that we are not processing any payments of any crypto exchange, as the RBI is against it.”

Recently, Finance Minister Nirmala Sitharaman also made a strong case for regulating cryptocurr­encies at a global level to mitigate the risk of money laundering and terror funding. Participat­ing in a panel discussion organised by the IMF, the Finance Minister, on April 19, 2022, said that as long as the non-government­al activity of the crypto assets was through unhosted wallets, regulation was going to be very difficult. “The risk which worries me more in the nongovernm­ental domain is that essentiall­y you’re looking at unhosted wallets across the borders, across the globe. So, regulation cannot be done by a single country within its terrain through some effective method, and for doing it across the borders, technology doesn’t have a solution that will be acceptable to various sovereigns, at the same time applicable within each of the territorie­s,” she had said.


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