India’s Biggest Bitcoin Exchanges See Bank Accounts Frozen: Report

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According to a report by the Indian news publication, The Economic Times(ET), bitcoin exchanges in India may be facing some disruption from the country’s top financial institutions. Over the past month since December 2017, several national banks, including State Bank of India, HDFC Bank, Axis Bank, Yes Bank and ICICI Bank, have frozen accounts belonging to select digital currency exchanges.

The suspension of bank accounts appears to be primarily motivated by the banking industry’s lack of faith in such businesses, especially since most exchanges have been largely operating on borrowed funds. Furthermore, of the Indian banks that haven’t imposed a complete suspension on the bank accounts, most have limited the amount of money that can be withdrawn within a single day.

Although Economic Times’ list of affected businesses only includes Zebpay, Unocoin, CoinSecure and BtcxIndia, other exchanges have also been publicly experiencing some problems.

A banking representative told ET that “(The) Reserve Bank of India has not issued any directive to us – it’s a cautionary move on our part.” Financial institutions are also demanding cryptocurrency exchanges for collateral on their borrowings while keeping accounts hostage. A source familiar with the matter said,

“Since last month, banks have been asking for additional collateral with 1:1 ratio.”

Most Indian exchanges that borrowed capital from financial institutions did so in the hopes of raising an equivalent amount in private equity investment, something that has not come into fruition yet. It is likely that venture capitalists are waiting for the government to clarify the taxation and regulatory aspects of cryptocurrencies in the country.

An estimated eight bank accounts have been frozen so far, with more to possibly follow, according to sources quoted by The Economic Times. Banks have also reported exchanges using their bank accounts for reasons other than what was stated at the time of creating them. Financial institutions in India are mandated to disclose such suspicious transactions to the Financial Intelligence Unit.

It is not only the banking sector in India that has been scrutinizing the exchanges, however. The country’s direct and indirect tax departments have also begun showing a keen interest in the matter. In December 2017, the Indian Income Tax department conducted audits at a number of cryptocurrency exchanges throughout the country. A few days later, it announced that it had sent notices to high net-worth individuals that previously transacted large amounts of cryptocurrency. According to the same department, the cumulative revenue of the top 10 Indian exchanges is in the ballpark of $6 billion.

Zebpay and Koinex, responsible for most of India’s digital currency trading volume and the most popular options among new investors, have both released several statements following the suspension of some of their bank accounts in the past few weeks. While Zebpay did not stop processing withdrawals in this time frame, it did have some hiccups with deposits as evidenced by a support webpage. Koinex suspended all fiat transactions, including deposits, for around a week, before re-enabling the option on January 8, 2018.

Due to this increased scrutiny by lawmakers and financial bodies, the past month has been particularly troublesome for Indian exchanges. The situation is likely to worsen as the cryptocurrency market continues to intrigue the country’s population and gain traction among first-time investors.

Featured image from Shutterstock.

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