ICICI Bank Shuts the LRS Door for Crypto Traders

Many cryptocurrency traders, shut out of the Indian crypto market by local banks, are now being restrained from buying virtual currencies from overseas markets.

India’s largest private sector bank ICICI is telling customers remitting funds to invest abroad to give a declaration that the money will not be used to buy Bitcoin or other cryptocurrencies.

For this, the bank has tweaked its ‘retail outward remittance application from’ that customers have to sigh to transfer funds to buy stocks and Reserve Bank of India’s liberalized remittance scheme (LRS). The LRS declaration is not confined to barring direct investment in Ethereum, Ripple, Litecoin, Dash, Peercoin, Dogrecoin, Primecoin, Chinacoin, Wen, Bitcoin and other virtual currencies. ICICI customers have to also agree that the LRS remittance will not be invested in “units of mutual funds or shares or any other capital instrument of a company dealing in Bitcoin/cryptocurrencies/virtual currencies.”

The bank has also laid down that the source of funds for any remittance under LRS is not proceeds from redemption of investments in Bitcoin or other cryptocurrencies. “The Master Direction on LRS issued by the RBI will not, generally, prescribe the documents which should be verified by the Authorized. Persons while releasing foreign exchange. So this could be a declaration that is being sought only by the bank in question as per their internal procedure. However, it would be interesting to see of other banks also start seeking similar declaration,” said Ajay Rotti, Partner, Dhruva Advisors LLP.

ICICI was the first bank in India to stop online payments for crypto trades. In April, the bank told payment gateway operators to disallow ICICI Net banking for merchants who are involved in buying or selling Bitcoin directly or indirectly. Soon, more bank followed causing a drop in trade volumes. What other banks do to restrict LRS use for crypto would be clearer over the next few months.

Some banks ET spoke to are reluctant to add sweeping conditions under the LRS route following the Supreme Court ruling last year. In March 2020, the apex court had set aside RBI’s 2018 directive banning banks and other regulated entities from dealing in transactions related to cryptocurrencies.

“The recent RBI circular has advised banks and regulated entities not to cite the 2018 circular for disallowing transactions in virtual currencies, given the Supreme Court verdict. That being said, RBI has also clearly mentioned in the same circular that such regulated entities should ensure compliance with other relevant laws including FEMA. Since there is no specific provision under FEMA dealing with acquisition of virtual currency, ambiguity under the exchange control laws continues to persist for transaction involving overseas remittances,” said Moin Ladha, Partner at Khaitan & Co, one of India’s largest law firm. “The regulation is not clear,” added Rotti.

Crypto are in the permissible list of capital account transactions under LRS, though there is no explicit ban. An ICICI Bank spokesman did not comment on the subject. S-ET

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