RBI’s New Regulatory Framework: Shaping the Future of Crypto and Fintech in India

A Pivotal Shift in Indian Financial Policy

In May 2025, the Reserve Bank of India (RBI) introduced a significant policy move: the Framework for Formulation of Regulations. This new structure aims to make regulation more transparent, participatory, and impact-driven. While it doesn’t explicitly address cryptocurrencies, the framework’s timing and scope suggest that digital assets and fintech are very much on the horizon.

India’s digital finance ecosystem has reached an inflection point. The country topped Chainalysis’ 2023 Global Crypto Adoption Index, affirming its leadership in retail crypto engagement. Yet, a comprehensive regulatory framework for the sector remains elusive. The Supreme Court’s 2020 decision overturning the RBI’s banking ban on crypto was a critical moment, and the 2023 mandate requiring crypto companies to register with the Financial Intelligence Unit – India (FIU-IND) and follow AML/CFT rules marked further progress. Now, with this framework, the stage is set for more structured policymaking.

Where Could India Go from Here?

Looking at India’s regulatory history and global benchmarks, three potential paths are emerging for crypto and digital assets.

Scenario 1: Regulated Integration (Singapore Model)

India embraces crypto through a formal, balanced regulatory regime.

• Crypto exchanges are licensed under acts like the Payment and Settlement Systems Act.

• Tokens are clearly categorized as utility, security, or payment tokens.

• FEMA rules are updated to allow cross-border crypto use under regulatory oversight.

• Public consultation guides policy evolution.

This scenario reflects signals already present: the RBI’s 2022 Financial Stability Report acknowledged blockchain’s potential, and SEBI has promoted innovation sandboxes to test regulatory ideas without systemic risk.

Scenario 2: Constrained Growth (Current Trajectory)

Cryptocurrency continues to operate in a semi-regulated, legally uncertain environment.

• Companies are subject to AML/CFT compliance but receive no formal recognition.

• High taxation remains a barrier: 30% capital gains tax and 1% TDS on every transaction.

• CBDCs and UPI maintain dominance in India’s digital finance ecosystem.

This mirrors the current trajectory. The 2023 AML rules were implemented with limited industry input, and while the Digital Rupee pilot gained momentum in 2024, private crypto remains excluded from the national financial infrastructure.

Scenario 3: Progressive Restriction (Indirect Deterrence)

No official ban, but the operating environment is becoming increasingly difficult.

• Banking access for crypto firms becomes unpredictable or restricted.

• Compliance burdens drive startups to incorporate overseas.

• Regulatory uncertainty discourages long-term investment.

India has already experienced this before. Between 2018 and 2020, crypto firms struggled with banking restrictions, and recent FEMA investigations into offshore exchanges signal continued pressure. The RBI’s Deputy Governor’s 2023 warning about crypto risks adds to this cautious narrative.

Fintech Innovation vs. Regulatory Restraint

The broader fintech landscape is also at a crossroads. On the one hand, the success of UPI is undeniable. Over 14 billion transactions were processed in April 2025 alone, and the UPI Lite limit was recently raised to ?5,000. Yet crypto remains shut out, with no pathway for integration into this powerful system.

On the other hand, the Digital Rupee is making steady progress. The retail pilot exceeded 1 million users by 2024, and the wholesale version is being used in interbank settlements. As it scales, there’s concern it could sideline private stablecoins and reduce space for decentralised innovation—unless both models are allowed to coexist.

Global Lessons for India

India’s policymakers can draw valuable insights from international examples:

• European Union (MiCA): Unified licensing created stability and market confidence.

• Singapore: Regulated exchanges under the Payment Services Act while maintaining innovation and control.

• United States: Reliance on enforcement has led to market fragmentation and capital flight.

Each model highlights a fundamental truth: clarity fosters innovation, while ambiguity drives opportunity elsewhere.

Industry Response and What Comes Next

Stakeholders across India’s fintech and crypto sectors are preparing to engage constructively with the framework:

• The Bharat Web3 Association is crafting formal policy recommendations.

• Major exchanges are investing in compliance infrastructure and internal audits.

• Fintech companies are actively exploring CBDC integration for payroll, payments, and lending use cases.

The next 12–18 months will be crucial. Public consultations on draft crypto-related regulations are expected to begin soon. The RBI’s follow-up actions will serve as a barometer for its true stance. In the meantime, industry players are adjusting their strategies for both clarity and uncertainty.

Conclusion: Clarity in Progress

This framework may not deliver immediate regulatory change, but it provides something equally important: a defined, transparent process for shaping the future of digital finance. For the first time, stakeholders have a legitimate seat at the table, offering the crypto sector the structured dialogue it has long demanded.

India now stands at a decisive moment. Will it follow a model of regulated innovation, or allow caution to slow its digital momentum? The answer will depend on how regulators, developers, and businesses respond to this new environment of consultation and transparency.

The coming months won’t just determine how crypto is regulated—they’ll shape the very future of India’s financial innovation.

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