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Kotak has become the first large bank to open its doors to the crypto community amid a growing sense that cryptocurrencies could be regulated rather than prohibited in India. Kotak Bank will do business with WazirX, one of the country's top crypto exchanges, after over eight months of payment freezes by most high-street banks that continue to shun crypto investors and bourses.
WazirX Opened an Account with Kotak
"WazirX has opened a bank account with Kotak, which will be used to receive and disburse money to WazirX investors. The account has yet to be activated, and paperwork, KYC, and some testing are all in progress. "ET was informed by a source familiar with the situation.
Following recommendations from the Reserve Bank of India, WazirX canceled its account with ICICI Bank, India's second-largest private lender, around a year ago (and continues to be skeptical of cryptocurrencies). MobiKwik, a digital wallet and payment services firm, took over most of WazirX's business.
As the business sensed the regulator's displeasure, prominent banks, including HDFC Bank, Axis Bank, and SBI, began prohibiting payments involving crypto platforms and sellers.
Cryptocurrencies Could Emerge As a Growing Asset
ICICI advised payment gateway operators in May to deactivate ICICI Netbanking for merchants who were directly or indirectly involved in buying or selling cryptos. Payment gateway companies, which act as third parties, link a customer's bank account and a merchant's payment portal. In August, the country's largest lender, State Bank of India (SBI), directed payment processors to disable 'SBI UPI' for crypto merchants, thereby prohibiting crypto bourses from receiving cash over its UPI platform.
Even though crypto investments are insignificant compared to other financial assets. Cryptocurrencies could become a new and expanding asset class if the government, working on a new law, authorizes local trading of select cryptocurrencies. Kotak wants a piece of the action after betting on the possibility. The bank is warming to the transaction and has been in contact with other cryptocurrency exchanges such as Zebpay.
RBI Banned Transactions Linked To Cryptocurrencies in 2018
The RBI had banned banks from facilitating payments for cryptocurrency transactions in 2018, but the Supreme Court overturned that regulation in March 2020.
Banks were allowed to deal with the cryptocurrency ecosystem after the RBI clarified to them in May this year that they could not cite the 2018 directive because the Supreme Court had overturned it. Since then, banks have been allowed to engage as long as they follow the requisite KYC, AML, CFT, PMLA, and FEMA due diligence processes, as well as assessing their financial health and risk exposures.
However, different institutions have interpreted the RBI statement differently, and most banks have yet to resume dealings with cryptocurrency exchanges. Furthermore, most bank officials and relationship managers discourage consumers from investing in cryptos, an investment in which the banks receive no commission.