Nearly a dozen of India’s most prestigious financial institutions, including HDFC bank, ICICI Bank NSE 2.05 percent, and State Bank of India NSE 0.63 percent, are collaborating with the Reserve Bank of India on a blockchain-based pilot project that will focus on trade finance. In the event that it is effective, it might be used to assist prevent loan frauds committed by fugitive borrowers such as Nirav Modi and Mehul Choksi, who gamed the system in order to syphon off millions of crores of rupees.
Three persons with knowledge of the situation informed ET that the technical assistance for the initiative that is being spearheaded by the Reserve Bank of India’s (RBI) Innovation Hub in Bangalore will be provided by the companies SettleMint of Belgium, Corda Technologies of the United States, and IBM. Involved financial institutions include Axis Bank NSE 0.74 percent, Bank of Baroda NSE 3.63 percent, and Union Bank of India NSE 1.43 percent respectively.
In the lingo of the industry, the pilot project will be referred to as a “proof of concept,” and it will utilise blockchain technology to improve the traceability of money movement. This technology allows “blocks” of transaction data to be kept in “chains” with peer-to-peer access.
A representative from Bank of Baroda said in a statement, “We are participating and supporting the project.”
ET’s questions were not answered by the Reserve Bank of India (RBI), other banks, or technological partners.
The Reserve Bank of India (RBI) is facilitating interactions between a variety of technology suppliers and a chosen group of individual banks.
“This is to analyse how blockchain can facilitate and safeguard our financial system,” stated one of the people listed above. “This is to assess how blockchain can facilitate and secure our banking system.”
Preventing LC Fraud
One of the primary concerns that will be addressed by the project is the possibility of forged papers, such as Letters of Credit (LC), and the utilisation of blockchain technology will assist address this concern.
The implementation of blockchain technology as a component of the Core Banking System is the primary goal (CBS). The implementation of the technology will be put through its paces in this particular project before it becomes standard operating procedure.
An executive who was engaged in the process stated that “the pilot has begun with banks to run blockchain-backed systems to issue digital LCs.” “The pilot has begun with banks to run blockchain-backed systems to issue digital LCs.”
The application of blockchain technology in the financial sector is becoming an increasingly important topic. It is quite likely that the Reserve Bank of India would implement the same technological solution for the central bank digital currency project that has been presented.
The pilot project centred on trade finance, on the other hand, has a scope and application that are distinct from those of the project involving the creation of a digital currency.
According to one of the people cited above, approximately two weeks ago, the RBI Innovation Hub, a wholly owned subsidiary of the central bank, conducted a three-day workshop with banks in Mumbai. The purpose of the workshop was to provide participating lenders with an opportunity to engage in hands-on trading on Distributed Ledger Technology (DLT).
According to the World Bank, blockchain technology is a type of distributed ledger that synchronises and records transactions in an electronic ledger using machines that are not connected to one another.
Approximately a year ago, fifteen different banks came together to form a new firm that was going to employ blockchain technology in order to handle the processing of letters of credit. Following the LC incident that occurred at the Punjab National Bank NSE 1.03 percent, a new firm was established with the intention of bringing blockchain technology to the forefront of the financial industry. This company was given the name Indian Banks’ Blockchain Infrastructure Co. (IBBIC). It is not quite apparent what the current state of the proposed firm is.
An individual who works in the blockchain field was recently quoted as saying, “We do not know what is going there since this RBI pilot project might very well be an alternative.”