Dealing in bitcoins in India will take a huge hit, after the RBI today directed banks, NBFCs and payment service providers to disassociate themselves from entities dealing with virtual currencies (VCs), including bitcoins, with immediate effect.

The Reserve Bank of India (RBI) has repeatedly cautioned users, holders and traders of virtual currencies, including bitcoins. "In view of the associated risks, it has been decided that, with immediate effect, entities regulated by the Reserve Bank shall not deal in VCs or provide services for facilitating any person or entity in dealing with or settling VCs," the notification said.

The services flagged by the RBI include maintaining accounts, registering, trading, settling, clearing, giving loans against virtual tokens, accepting them as collateral, among others. The instructions are applicable to all commercial, co-operative banks, payments banks, small finance banks, non banking financial companies (NBFCs) and payment system providers.

In his Budget speech on February 1, Finance Minister Arun Jaitley had said that cryptocurrencies are not legal and affirmed to eliminate their usage. Since then, top banks, including HDFC Bank, SBI and the American lender Citi, have virtually stopped supporting cryptocurrencies related transactions, resulting in what reports said was a 90 per cent decline in trading.

Several private banks have already disassociated themselves with trade from bitcoins and the RBI move would now virtually put an end to the trade.

With inputs from PTI