India’s central bank has reasserted a call for banks and financial institutions to be barred from any exposure to crypto assets and privately issued stablecoins, according to internal government documents from May and June reviewed by Reuters. No formal policy exists yet, but the Reserve Bank of India is still “leaning towards prohibition,” Reuters reported.

Indian banks are not currently prohibited from dealing in cryptocurrencies, though major lenders have largely avoided the sector after repeated warnings from the RBI. The central bank aims to keep crypto out of the regulated financial system, Reuters quoted a source as saying.

The RBI extended its warning to stablecoins. Foreign-currency-backed tokens threaten domestic monetary sovereignty, while rupee-backed versions could cut into government revenue from issuing currency and add financial-stability risk during market stress, Reuters quoted the central bank as saying. Wider stablecoin use could also make crypto gains harder to tax, since holders would have less need to convert into rupees, the central bank reportedly added.

India’s tax department, which taxes crypto gains at 30%, separately flagged serious compliance gaps, Reuters reported. Less than a quarter of the 645,000 people with crypto transactions in the year ending March 2023 actually declared those gains on their tax returns, Reuters quoted the agency as reporting. Officials reportedly said transactions routed through offshore exchanges, private wallets, and rupee-based peer-to-peer trades make it difficult to identify holders and collect what’s owed.

India’s crypto traders have operated in a legal grey zone since the Supreme Court struck down an earlier RBI-driven ban in 2018. A 2021 bill to outlaw private cryptocurrencies was never introduced in parliament, and government discussions have been repeatedly delayed.

Meanwhile, India’s finance ministry has backed offering minimal crypto rules, after consulting the RBI, arguing existing tax and other laws already contained the asset class’s risks, Reuters reported in September.

The renewed push comes as other governments move the opposite way. Crypto has gained broader global acceptance following U.S. stablecoin legislation, and Japan and Singapore have both moved to regulate the asset class rather than restrict it. China remains among the few major economies to have banned it outright.

India had roughly 39 million crypto traders who held approximately $2.1 billion in digital assets as of May, according to Reuters, which cited tax department estimates.

Related Listen: Ari Redbord Sits Down With the Hosts of DEX in the City