The Reserve Bank of India (RBI) is informally requesting that lenders cease their associations with crypto exchanges and traders.

The request comes in light of India’s continued regulatory uncertainty surrounding the booming cryptocurrency market in the country.

Currently, legislation to ban private cryptocurrencies is underway in the Indian parliament. There is mounting speculation that it intends to proceed further with an outright ban on cryptocurrencies. However, the scale of the COVID-19 epidemic seems to have stalled any progress on that front for the time being.

The RBI had previously banned banks from dealing in all transactions related to cryptocurrencies in 2018. India’s Supreme Court overturned this ruling in March 2020 due to the forceful petitioning of Indian crypto exchanges. Many of these exchanges have collaborated in an effort to preempt another potential ban. 

Despite the regulatory uncertainty, Indian crypto exchange ZebPay expects to continue increasing its trading volume. CEO Rahul Pagidipati says he expects trading volume to double to $2 billion per month. By the end of the year, he predicts trading volumes to generate $25 billion. Crypto exchange growth is certainly representative of the growing demand for and usage of cryptocurrencies in the country.

According to industry estimates, there are over 10 million crypto investors in India. Although no official data is available, estimations that total holdings are worth over 100 billion rupees ($1.36 billion).

Despite the request from RBI being informal, “no one wants to go against the regulator,” according to one anonymous source. This has led to several banks following through with distancing themselves from crypto exchanges, despite the boom. 

For instance, private lender ICICI Bank already asked payment service companies it works with to stop all crypto-related payment transactions. This has already started affecting the operations of some exchanges. 

Earlier this month, the Indian crypto exchange WazirX crashed due to overwhelming volume. The exchange has also been experiencing difficulties with deposits and withdrawals due to the suspension of its current account with ICICI Bank.

Axis Bank, Citibank, and Kotak Mahindra Bank have also followed suit in limiting their exposure to cryptocurrencies. This has left crypto exchanges scrambling to find new business partners.

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