India's central bank, the Reserve Bank of India (RBI), has again stated that banks and financial institutions should be prevented from holding and trading cryptocurrencies.

CoinPost, a blockchain media outlet, reported on Wednesday that the RBI argued in government documents that cryptocurrency policy should be reset toward a near-ban approach.

The core goal is to cut links between regulated finance and the cryptocurrency market. In documents drafted in May and June, the RBI called for banning banks and financial institutions from holding or trading crypto assets and privately issued stablecoins, and from acquiring related exposures. It said the move is aimed at reducing spillover risks to the financial system and keeping cryptocurrencies outside the regulated financial system.

It also made clear its wariness of stablecoins. The RBI said foreign currency-based stablecoins could threaten domestic monetary sovereignty. It added that rupee-linked tokens could reduce government revenue from the issuance of legal tender and could harm financial stability during periods of market stress. The RBI argued that wider use of stablecoins could reduce demand for conversion into legal tender, making it harder to detect and tax crypto profits.

The stance comes as India has yet to settle on a clear institutional direction for cryptocurrencies. The RBI introduced rules in 2018 that effectively blocked bank services related to cryptocurrencies, but India's Supreme Court in 2020 found the measures unconstitutional, allowing trading again. A draft cryptocurrency ban bill prepared in 2021 was not submitted to parliament, and the government has delayed a decision citing a balance between innovation and risk management.

Tax authorities also raised issues related to revenue collection alongside regulation. According to government documents, Indian tax authorities found cases in which cryptocurrency holdings were underreported during the income tax filing process. Of the 645,000 people who traded cryptocurrencies in the fiscal year ending March 2023, fewer than a quarter recorded it in their returns.

The documents also included estimates of the market's size. Tax authorities estimate there are about 39 million cryptocurrency traders in India, holding digital assets worth about $2.1 billion as of the end of May. India currently applies a 30 percent tax rate on cryptocurrency gains.

India has not fully blocked overseas exchanges from operating in the country. Foreign cryptocurrency exchanges such as Binance and Coinbase can do business in India if they register with government agencies. Still, if the ban on financial-sector holdings and tougher tax tracking advance at the same time, the local market could be reshaped more narrowly around individual trading and registered operators.

In addition, India's Ministry of Corporate Affairs is reviewing the preparation of accounting standards and related guidelines for virtual digital assets. As blocking regulated finance, strengthening tax tracking and refining accounting standards are discussed together, India's cryptocurrency policy appears to be tilting again toward a tougher stance.