‘Can’t afford a crypto mania’: RBI governor on cryptocurrencies

Reserve Bank of India (RBI) Governor Shaktikanta Das,

The US may have green-lighted exchange-traded funds (ETFs) in bitcoin, but for India’s apex banking regulator, cryptocurrencies remain a strict no-no.

“The way we look at crypto remains unchanged, irrespective of who does what,” Reserve Bank of India (RBI) governor Shaktikanta Das stated at the 16th Mint Annual BFSI Summit and Awards in Mumbai on Thursday. “Just because somebody is doing something, we are not here to emulate them.”

The US Securities and Exchange Commission (SEC) on Wednesday approved the first US-listed ETFs to track bitcoin, marking a milestone for the world’s largest cryptocurrency and the broader crypto industry. The SEC approved 11 applications, including from BlackRock, Fidelity and Invesco. At the same time, the SEC said it does not endorse or approve bitcoin.

“RBI’s position on cryptocurrency remains unchanged. Travelling down that path will create huge risks. I don’t think the world or emerging markets (EMs) can take a crypto mania like the tulip mania,” Das said, referring to the 17th century boom and bust in Dutch tulip prices, regarded as one of the most infamous asset bubbles in history.

Delivering the keynote address at the event, Das pointed out that the US regulator itself has flagged the risks of cryptocurrency products. However, he noted that the blockchain technology, on which cryptocurrencies are built, has the potential to lend itself to many applications.

The governor has voiced his concerns on cryptocurrencies several times earlier as well, citing macroeconomic and financial stability risks. In June 2022, Das termed them a “clear danger”, and said anything that derives value based on make-believe, “without any underlying”, is just speculation under a sophisticated name.

The central bank has been focusing on strengthening governance and assurance in regulated entities, Das said. “The key is to identify risks early, monitor them closely and manage them effectively. In this context, instilling an appropriate risk culture in the organisation is important.” This needs to be driven by the board and senior management with effective accountability at all levels, Das said, adding RBI expects top officials and board members to play a more proactive role.

Speaking at a separate event on the same day, the governor said RBI is crafting a framework for securitisation of stressed assets, for which it had issued a discussion paper in January, 2023. “We have received comments, they have been examined and now we are in our way to issue revise framework for Securitisation of stressed assets,” Das said.

On another note, Das pointed to the exuberance building in unsecured lending.

“There was a FOMO or fear of missing out that was coming in; this was one opportunity that everyone thought they will capitalise,” he said. “We saw banks and certain NBFCs did not have that kind of bandwidth of doing due diligence of loan proposals to justify the kind of loan growth that these sectors were seeing. It was very clear that this kind of growth would not be sustainable going forward, if it is not slightly moderated,” Das said at the Mint event. Thus, the central bank pre-emptively acted before this could lead to a systemic risk, Das said.

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