Experts say that investors in India can technically still hold on to their Bitcoin and other digital currency and can also trade in cash or through a foreign bank account.
The central bank had been cautioning users against making digital currency-related investments.
"We recognise that blockchain technology that lies beneath the virtual currencies has a potential benefit for financial inclusion and enhancing the efficiency of the financial system". Unlike China, which enforced a blanket ban on trading and holding cryptocurrencies, the RBI's latest step is just a clever way of stopping people from continuing to increase investments in cryptocurrencies by simply barring banks from facilitating the transfer of money to Indian crypto exchanges like Zebpay, Unicoin and Coindelta.
Ravi Kikan, COO, Panaesha Capital, said: "If you look at the complete circular it first talks about RBI exploring the desirability and feasibility of introducing its own crypto currency (a fiat-digital one)".
The RBI, however, gave banks and other entities which are regulated by it and now providing such services to exit the relationship within a period of three months.
"The alternate way for the cryptocurrency exchange will be to do crypto to crypto trading", said Bhatt.
"Several central banks are debating the possibility of introducing a fiat digital currency".
Quoting the "World Economic Situation and Prospects 2018" report of the United Nations, Minister of State for Finance Pon Radhakrishnan said the Indian economy is projected to grow at 7.2 per cent in 2018-19 and 7.4 per cent in 2019-20.
Countries like Japan and South Korea have come down heavily on Bitcoin and other cryptocurrencies, particularly after the wild fluctuations in the price of Bitcoin which went up to dizzying heights of around $20,000 per unit before falling to the $7,000 levels now causing losses to many.
Unsurprisingly, the RBI positions itself as merely looking out for consumers' interests, while also citing the frequently used claims that cryptocurrencies are simply tools for criminals and those looking to undermine market integrity.
Recently, there was a speculation of the government plans to launch its own digital currency called Laxmi coin.
The RBI is undergoing this project in an attempt to make its services more efficient and improve the country's financial system.