If the Indian Government wanted to ban Bitcoin, or term it illegal, it could have done so long ago. But the way the rapid emergence of Bitcoins and the cryptocurrency market has challenged the fiat currency legacy, it has become a revolutionary phenomena that cannot be ignored. While some countries have started experimenting with it, and supporting it after due diligence and regularization, India has taken a wait and watch approach.
Without taking a clear stand, the Government has taken a diplomatic position where its is advising people to invest in cryptocurrencies at their own risk. Its best to keep it that way for some time until a clear picture emerges on how the Bitcoin market matures. Yet, if Bitcoin related banking and credit card transactions have been allowed by the Indian Government and RBI, this implies indirect support by the Government without taking ownership of risks involved.
In the long term, everyone knows that the concept of cryptocurrencies is here to stay. Putting a complete ban on it would not make much sense because that would mean a significant loss of opportunity.