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Indian investors cheer central bank's clarification that crypto trading isn't banned Image Credit: Shutterstock

The Reserve Bank of India's clarification that cryptocurrency trading is permitted in the country is a welcome relief for a community facing push-back from traditional lenders needed to help settle these deals.

The regulator late on Monday told banks not to cite a 2018 central bank circular as a reason to hinder crypto trades. The 2018 note had forbid banks from facilitating such transactions, but has since been struck down by the Supreme Court. Banks must continue with other routine due diligence measures on the deals, the RBI said.

"The circular is no longer valid from the date of the Supreme Court judgment, and therefore cannot be cited or quoted from," the RBI said.

The RBI order follows local media reports that financial firms, including SBI Cards & Payment Services Ltd., one of India's biggest credit card issuers, and the nation's largest private-sector bank HDFC Bank Ltd. had cautioned customers against dealing in virtual currencies. Indian authorities have repeatedly expressed concern that crypto assets could be used for criminal activity such as money laundering and funding terrorism.

"Investing in crypto has always been 100 per cent legal in India and the new RBI circular clearly confirms the right to do business with crypto firms," said Avinash Shekhar, co-Chief Executive Officer at ZebPay, India's oldest crypto exchange. He added that the clarification will attract more investors to the virtual currencies.

The RBI's broader concerns and banks' worries around money laundering should help to spur regulations and make the industry safer and stronger, said Sumit Gupta, CEO and co-founder of crypto exchange CoinDCX.

Bitcoin, the largest cryptocurrency, was little changed as of 12:15 p.m. in Hong Kong on Tuesday, after having gained in the two previous sessions.