In a move that could aid in preventing loan frauds by fugitive borrowers, the Reserve Bank of India has joined hands with a dozen of top lenders including HDFC bank, ICICI Bank and State Bank of India to run a blockchain-based pilot project based on trade financing.
Other banks that are also a part of the pilot are Axis Bank, Bank of Baroda and Union Bank of India.
‘Proof of concept’, as the pilot is being called in industry parlance will harness blockchain technology where ‘blocks’ of transaction data are stored in ‘chains’ with peer-to-peer access to enhance traceability of money flow.
The tech support for the project, driven by the RBI’s Innovation Hub in Bangalore, will be offered by Belgium-based SettleMint, US-based Corda Technologies and IBM, according to three people in the know of the development.
To assess how blockchain can facilitate and secure our banking system, different technology providers are working with select individual banks under the leadership of the central bank.
Preventing LC Fraud
A key focus area of the project is tampering of documents like Letters of Credit (LC), and blockchain technology can help prevent the misuse of LCs. It is being aimed at that blockchain technology become a part of the Core Banking System (CBS) and this pilot will test the application of the technology before it becomes established practice.
“The pilot has begun with banks to run blockchain-backed systems to issue digital LCs,” an executive involved in the process told Economic Times.
The RBI Innovation Hub had organised a three-day workshop about a fortnight back with banks in Mumbai. During the workshop, participating banks were given hands-on trading on Distributed Ledger Technology (DLT), according to a person cited above.
Meanwhile, as many as 15 lenders had teamed up about a year ago to set up a new company that was supposed to use blockchain technology for processing LCs. The company, christened as Indian Banks’ Blockchain Infrastructure Co (IBBIC), was meant to bring blockchain technology to the forefront of the banking system in the aftermath of the LC scandal at the Punjab National Bank.
