BLOCKCHAIN TECH. IMPACTING BANKS

Banks in the country have joined hands to create a new company that will leverage the power of blockchain technology to speed up the processing of Letters of Credit (LCs). The blockchain technology creates a digital ledger by integrating data from across platforms and hardware and enables independent parties, spread across the globe, to share data across the network. Indian Banks' Blockchain Infrastructure Company Private Limited (IBBIC) is a coalition of 15 banks, including ICICI Bank, HDFC Bank, RBL Bank, SBI and Canara Bank joined to benefit from the transformation.

The system will be based on Infosys’ Finacle Connect, a blockchain-based platform that enables digitisation and automation of trade-related finance processes. The move is expected to eliminate paperwork, reduce transaction processing time, and offer a secure environment. Moreover, it could be a boon for medium and small-scale enterprises.

The LCs are the letters from a bank that guarantee that a buyer will pay the seller on time, and for the correct amount. Currently, the process of issuing an LC is relatively slow and requires human intervention to prevent frauds, authenticate transactions, and balance the ledger. Using blockchain to issue LCs would potentially solve these issues. Even elemental fraud like the issuance of two LCs on a single invoice can be easily prevented with the help of this blockchain technology.

Organizations are leveraging the blockchain technology to create smart contracts that remove the need for third-party administrators and evaluators. Today's supply chains are globally-dispersed with raw materials being sourced from different locations, each set of the parts being produced and assembled in different locations. The final products then need to be packaged, stored in warehouses and delivered to the final consumers or the seller chains. It is a set of highly interconnected and interdependent activities and an error in one step causes multiple losses to the business. So, there is a need for transparency, accountability and real-time tracking to ensure that the processes are on-track and on-budget.

Blockchain technology is helping supply chain management on these fronts. Secondly, for executing smart contracts, a computer code is run on top of the blockchain whereby the parties set predefined rules beforehand. When these rules are met, the agreement is considered to be completed and it is automatically enforced. Banks and financial institutions leverage the blockchain for identity management (knowing and verifying their customers) of clients and fraud detection. Also, if one bank uploads the KYC of a customer on the blockchain database, other banks can access these records and save a great amount of time in re-doing the process.

Deepak Sahu, President & CEO, VARINDIA