Reserve Bank of India announced on Thursday that regulated financial firms in India cannot legally deal with cryptocurrencies anymore.
"In view of the associated risks, it has been decided that, with immediate effect, entities regulated by RBI shall not deal with or provide services to any individual or business entities dealing with or settling virtual currencies," the bank said in a statement.
Those that already provide cryptocurrency services will need to end the services with a specified time, the bank announced separately.
The country’s tax department sent notices about cryptocurrency investing to tens of thousands of citizens after a national survey showed more than $3.5 billion worth of transactions have been conducted over 17-month period.
But Bitcoin and other cryptocurrencies are not legal tender in India. Before the statement on Thursday, the Indian government had issued warnings about the risk associated with trading. The digital assets also raised flags over consumer protection, market integrity and money laundering, the bank said.
According to the Hindu Newspaper, the Indian government has planned to take all measures to eliminate the use of crypto-assets on financing illegal activities or as part of the payment system too.
However, the Reserve Bank of India was more open to blockchain, the technology that underpins virtual currencies, which it said has the potential to improve the efficiency and inclusiveness of the financial system.