India’s central bank has reiterated its call to bar banks from crypto exposure, reinforcing a policy stance “leaning towards prohibition” as government documents reveal growing concerns over the risks posed by digital assets, Reuters reported Wednesday.

The Reserve Bank of India (RBI) said banks and financial institutions should not hold, trade or gain exposure to crypto and privately issued stablecoins, arguing that such restrictions would reduce contagion risks.

The bank also warned that foreign-backed stablecoins could threaten monetary sovereignty, while rupee-backed tokens could weaken government revenue from currency issuance and make crypto profits more difficult to track for tax purposes.

The documents indicate that key Indian authorities continue to favor tighter curbs on virtual digital assets, even though the government has yet to introduce a formal policy to ban or regulate the sector.

Crypto has remained in a legal grey area since a 2018 court ruling overturned an effective banking ban, while plans for comprehensive legislation have repeatedly been delayed.

The tax department also flagged widespread tax non-compliance, finding that fewer than one in four crypto traders reported their transactions in the 2022-23 financial year.

It said overseas exchanges, private wallets and peer-to-peer trades make it harder to identify taxpayers and assess taxable income, despite India’s rapid crypto market growth.