India’s central bank is taking a “very cautious” stance on cryptocurrencies and stablecoins, arguing that their volatility and potential to bypass safeguards could threaten financial stability, Reserve Bank of India (RBI) Governor Sanjay Malhotra said.
Malhotra’s remarks, delivered in a memorial lecture at Delhi School of Economics, come as India’s government weighs whether to introduce a formal stablecoin framework even while the RBI has repeatedly flagged risks and pushed its own central bank digital currency as a safer alternative.
He said new financial products such as stablecoins, cryptoassets and buy-now-pay-later schemes are testing the boundaries of what should fall within regulation, requiring authorities to constantly reassess the regulatory perimeter.
In the lecture, Malhotra set out the RBI’s broader regulatory philosophy, describing regulation as essential to correcting market failures and protecting consumers, but especially critical in finance because of the sector’s potential to transmit shocks through the entire economy.
He said financial institutions are uniquely interconnected, structurally fragile because they borrow short and lend long, and prone to pro-cyclical herd behaviour that can inflate bubbles and deepen downturns.
Against that backdrop, Malhotra reiterated that safeguarding financial stability is the RBI’s “north star”, with other objectives including prudential rules for liquidity and capital, conduct standards to protect consumers, anti-money-laundering controls and support for priority-sector credit.
He warned that short-term growth achieved at the expense of stability can raise the cost of future crises.
Malhotra said the RBI is trying to shift toward principle-based regulation to avoid “tick-box” compliance and reduce opportunities for regulatory arbitrage, while acknowledging that India will continue to use hybrid rules where clarity is needed.
He pointed to the RBI’s proposed expected credit loss (ECL) provisioning framework as an example, combining principles with quantitative floors.
The new ECL norms are slated to begin on April 1, 2027, with a phased glide path to March 31, 2031 to smooth any capital impact on banks.
The governor also stressed proportionality, tailoring rules by size and risk, along with public consultation, evidence-led policymaking and mandatory reviews every five to seven years to prevent a build-up of outdated rules after crises.
He added that regulators face recurring trade-offs between innovation and stability, and that any regulatory forbearance should be exceptional, time-bound and transparent to avoid delaying recognition of underlying problems.