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The Delhi High Court, on Thursday, asked the Reserve Bank of India (RBI) and State Bank of India (SBI) to respond to a petition seeking to direct the authorities to take back the decision to prohibit UPI payments on cryptocurrency exchange WazirX.

A Bench of Chief Justice DN Patel and Justice Jyoti Singh issued notice to SBI, RBI, National Payments Corporation of India and the Department of Financial Services, and asked them to respond to the petition. The court listed the matter for further hearing on December 24.

‘An arbitrary decision’

Petitioner Arnav Gulati, a law student and an investor, argued that he, along with the numerous account holders of SBI and registered users of WazirX, are aggrieved by the prohibition, which is arbitrary, and goes against the Supreme Court ruling in the case of Internet and Mobile Association of India, where the court had struck down the RBI circular prohibiting all banks to deal with any virtual currency or provide services for facilitating any entity in dealing with them.

“The Respondent No 1 (SBI) is directly involved in the matter as they have blocked and restricted the users and merchants to use the UPI deposits option on the crypto exchanges, thereby leaving users with no option but to use other payment deposit options, which take more time to get completed and extra charges like convenience fees, GST charges or service charges are charged, making it difficult for retail investors and users to get the funds on time,” said the petition.

“That the decision of Respondent No I is arbitrary, hasty, absurd, unreasonable and irrational, as all the respondents have never restricted the banks or other institutions in dealing with cryptocurrencies.

“That the Respondent No 2 (RBI) and others clarified in their notices and interviews that there is no objection with the Unified Payment Interface (hereinafter referred as UPI) system in the cryptocurrency exchanges and, therefore, the petitioner has approached this court to directing the Respondent No 1 (SBI) to take effective steps and take back the decision of prohibiting UPI Payments in the cryptoexchanges,” the petitioner added.

‘Violates SC judgment’

Advocates Siddharth Acharya and Simarjeet Singh Satia, representing the petitioner, said the SBI’s decision to block UPI services for WazirX is arbitrary and violative of the Supreme Court judgment of March 2020.

The lawyers said the PIL involved the interest of almost one crore retail investors of the WazirX crypto exchange platform, and sought direction to the authorities to take effective steps and take back the decision of prohibiting UPI payments in the crypto exchanges.

The plea said that in April 2018, the RBI issued a circular prohibiting all banks to deal with any virtual currencies or provide services for facilitating any person or entity in dealing with or settling them, including Bitcoins. Such services included maintaining accounts, registering, trading, settling, clearing, giving loans against virtual tokens, accepting them as collateral, opening accounts of exchanges dealing with them, and transfer/ receipt of money in accounts relating to purchase/ sale of virtual currencies, it said, adding that thereafter all the transactions related to cryptocurrencies via banking institutions were stopped.

“Later, the Supreme Court, in March 2020, passed a final order nullifying the circular of the RBI and paving the way for banks and their customers to deal in cryptocurrency. On the basis of the said order, the RBI issued another circular allowing the institutions under it to deal and facilitate transactions in virtual currencies,” it said.

The plea said that on September 15, SBI prohibited the use of the UPI platform for its account holders in the WazirX cryptocurrency exchange, which has now been challenged.

It sought direction to the RBI to regulate and govern the cryptocurrency sector, and thereby making provisions for the payment interfaces and decisions.

Considering higher domestic inflation as supply disruptions mount, it will not do any harm for RBI to lean with the wind and let the rupee appreciate, as it can lead to reduced imported inflation when metal and oil prices are rising, and clear the liquidity overhang to some extent, according to Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India.

“With CAD [current account deficit] at a comfortable situation and an extremely unlikely devastating third Covid (wave), the Indian rupee is going to handle any taper news with relative calm,” Ghosh said in the latest edition of SBI’s Ecowrap report.

“If we look at the current rupee trajectory, the rupee saw a tumultuous 2020, with the news of Covid-19 pushing the exchange rate down rapidly. However, it started gaining strength as India saw a current account surplus and foreign investors maintained faith in the economy by pouring in capital. RBI has continuously made forex purchases. In FY21, RBI purchased Rs 5.1 trillion worth of forex and its forex reserves swelled by $103.72 billion. Despite the second wave of Covid-19, the rupee gained strength and even went below 73 per dollar,” Ghosh added.

Dollar higher on upbeat US data but set for weekly losses

However, recently, the Indian unit has dropped from 73.09 per dollar as on September 1 to a low of 75.52 per dollar on October 12. It has again started appreciating and is currently at around 75. If we look at the turnover in the forex market, there has been excess supply of dollars at $2.2 billion in August 2021. This clearly shows that the appreciating bias on rupee remains.

The September 2021 merchandise trade deficit at $22.59 billion is quite high and has the closest counterpart in October 2012, when India recorded a merchandise trade deficit of $20.21 billion. But it needs to be remembered that trade data shows seasonality and it is fairly common to see a jump in imports as well as exports every quarter end month, Ghosh said.

So far, India’s exports have been doing quite well. India’s merchandise exports in April-September 2021 were $197.9 billion, a robust increase of 24.3 per cent over $159.2 billion in April-September 2019. In composition terms, engineering goods are the most valued. India has also seen considerable increase in products such as cereal preparations, cotton, electronics. drugs and pharma and chemicals are also performing well.

“Thus, achieving the target of $400 billion is not a pipe dream and this will provide a strong cushion to the current account balance, even if the oil import bills rise rapidly. Taking everything into account, our CAD projections stand at (-)1.4 per cent. India is also witnessing robust FDI inflows, even if the FPI flows are showing some volatility,” Ghosh added.