Private banks alert customers about crypto risks: Report

"I really worry when you see the ads because they seem to be indicating as if it's like a deposit. One advertisement I saw said that the returns are four times that of fixed-deposit rates,” he added.

The bankers also indicated that they were being told by the Reserve Bank of India (RBI) to limit their ledger book’s exposure to crypto platforms. The central bank has decidedly taken a vehement approach against cryptocurrencies and allied assets with RBI Governor Shaktikanta Das saying, “there are serious concerns on macro-economic and financial stability” about cryptocurrencies in India.

The central bank had notified banks against providing services to cryptocurrency exchanges in India in 2018, an order that was quashed by the Supreme Court last year.

The terse relation between the traditional financial institutions and the DeFi industry has been the backdrop against which the government may introduce a cryptocurrency regulation Bill in the upcoming winter session of the Parliament. While sources rule out a ban on cryptocurrencies, they are unlikely to be treated as currency. Crypto is expected to be designated as commodities or assets, which can be traded.

"In general, banks have been a little conservative toward the crypto industry and continue to show a lukewarm response towards us. As a result, we have had some experiences where major banks are reluctant to provide banking access for integration with crypto exchanges in India. The users have had to also go through this inconvenience because of the interruptions in our services," said Shashi Jha, Head of Legal & Compliance at WazirX, a cryptocurrency exchange.