RBI Banking Ban Reversal: What Changed for Crypto in India After the Supreme Court Ruling

Before March 2020, if you wanted to buy Bitcoin in India, you had to find a way around the banks. Not because the government banned crypto - but because the Reserve Bank of India made it impossible for exchanges to operate. They cut off banking services. No deposits. No withdrawals. No way to turn rupees into crypto. Thousands of users were locked out. Exchanges shut down. Developers left. It wasn’t just about Bitcoin - it was about shutting down an entire industry with no warning, no trial, no alternative.

How the RBI’s 2018 Ban Broke India’s Crypto Market

On April 6, 2018, the RBI issued a circular that told every bank, payment processor, and financial institution under its control: Do not serve anyone dealing in virtual currencies. That included Bitcoin, Ethereum, and every other crypto asset. The rule didn’t say crypto was illegal. It didn’t even say it was risky. It just said: No banking access. And that was enough.

Imagine running a business that needs to move money - but no bank will touch you. That’s what happened to CoinSwitch, ZebPay, and other Indian exchanges. They couldn’t accept rupees. They couldn’t pay their staff. They couldn’t refund users. Some tried to work with offshore banks. Others moved operations to Singapore or the UAE. Many just closed. Trading volume dropped by over 80% in six months.

The RBI claimed it was protecting consumers and the financial system. But here’s the problem: they never showed any proof. No data. No case studies. No reports of banks losing money. No evidence of fraud. Just fear. And that fear became a weapon.

The Supreme Court Step In - And What It Changed

On March 4, 2020, the Supreme Court of India overturned the RBI’s ban. The case was brought by the Internet and Mobile Association of India, representing crypto businesses. The court didn’t say crypto was good. It didn’t say the RBI was wrong to be cautious. It said: You didn’t follow the law.

The judges ruled the ban violated Article 19(1)(g) of the Indian Constitution - the right to carry on any profession or business. The RBI had used a sledgehammer when a scalpel would’ve worked. If the concern was money laundering or financial instability, why not apply existing AML rules? Why not require KYC? Why not cap transaction sizes? Instead, they banned everything - even blockchain startups building supply chain tools or digital identity systems.

Justice Rohinton Fali Nariman wrote that the RBI failed the test of proportionality. That’s legal jargon for: Was this punishment way too harsh for the crime? The answer was yes. The court found no evidence that any regulated bank had suffered harm from serving crypto firms. That was the death knell for the ban.

What Happened After the Ruling?

Within days, banks started reopening accounts. Exchanges came back online. CoinSwitch saw a 300% spike in new users in the first month. ZebPay reported a 400% increase in deposits. By mid-2020, India had the second-highest crypto trading volume in the world - behind only the U.S.

The ban’s reversal didn’t just bring back trading. It revived innovation. Startups working on blockchain-based land records, remittance platforms, and decentralized lending found banks willing to work with them again. The RBI’s blanket ban had hurt more than crypto - it hurt India’s tech ecosystem.

But here’s the catch: the Supreme Court didn’t make crypto legal tender. It didn’t create a regulatory framework. It just removed the banking blockade. That left a gray zone. Crypto could be bought and sold. But you couldn’t use it to pay for groceries. You couldn’t get a loan backed by Bitcoin. You couldn’t even open a crypto savings account with a traditional bank - most still avoided it out of caution.

The Government’s Failed Attempt to Ban Crypto (Again)

In January 2021, the Indian government leaked a draft bill called the Cryptocurrency and Regulation of Official Digital Currency Bill. The headline? Ban all private cryptocurrencies. The plan was to outlaw mining, trading, holding, and even gifting crypto. The only exception? A government-backed digital rupee - a Central Bank Digital Currency (CBDC) controlled by the RBI.

The bill sent shockwaves through the crypto community. Investors pulled out. Exchanges scrambled to prepare for shutdowns. But here’s what nobody expected: the bill never passed. Not in 2021. Not in 2022. Not in 2023. It disappeared from Parliament’s agenda.

Why? Two reasons. First, the Supreme Court’s 2020 ruling set a legal precedent. Any new ban would face immediate legal challenges - and likely lose again. Second, the crypto market had grown too big to ignore. Over 15 million Indians held crypto by 2023. Banning it would’ve meant criminalizing millions of ordinary people - not just speculators.

Where Things Stand in 2025

As of 2025, crypto in India is legal - but not regulated. You can buy, sell, and hold Bitcoin, Ethereum, Solana, or any other coin. You can use Indian exchanges like CoinDCX, WazirX, or Bitbns. Banks now allow crypto-related transactions - though many still treat them as high-risk.

But here’s the reality: the government still doesn’t like it. The RBI continues to warn about volatility, fraud, and capital flight. Former Governor Shaktikanta Das called crypto a “threat to monetary sovereignty.” The finance ministry still talks about a potential ban. The threat is quiet now - but it’s not gone.

The biggest change since 2020? Taxes. In 2022, the government slapped a 30% tax on crypto gains - plus a 1% TDS (tax deducted at source) on every trade. That’s higher than any other asset class in India. It’s not a ban - but it’s a heavy hand. It tells investors: We’re not stopping you, but we’re not helping you either.

What This Means for You

If you’re an Indian investor: you can still trade crypto. But don’t expect banks to treat it like stocks or gold. Don’t assume it’ll ever be used to pay for your coffee. And don’t think the government has given up on controlling it. The 2020 ruling was a win - but it was a temporary one. The next government could try again.

If you’re a developer or startup founder: blockchain tech is back on the table. But you’ll still need to prove your business isn’t just a crypto front. Most banks want to see clear use cases - like supply chain tracking or identity verification - not just token sales.

If you’re watching from outside India: this is a case study in how courts can rein in overreaching regulators. The RBI didn’t break the law - it just ignored the limits of its power. The Supreme Court reminded them: Power without proof is tyranny.

What’s Next?

The big question isn’t whether crypto will survive in India - it already has. The question is whether the government will finally create a real regulatory framework. Right now, the rules are a patchwork: the Supreme Court says you can trade, the tax department says you pay 30%, and the RBI says you’re on your own.

Industry groups are pushing for clarity. They want licensing for exchanges. They want anti-fraud rules. They want legal recognition for smart contracts. But the government hasn’t moved. And with elections looming in 2026, don’t expect a breakthrough soon.

For now, India’s crypto scene is thriving - but it’s living on borrowed time. The banking ban is gone. But the shadow of one still lingers.