Banking and Blockchain in India
- Aheli Raychaudhuri
Associate Editor, Crypto-News.in
Blockchain is the new buzzword in today's banking environment. However, for the newbies investopedia puts it succinctly in a generic way “A blockchain is a digitized, decentralized, public ledger of all cryptocurrency transactions. Constantly growing as 'completed' blocks (the most recent transactions) are recorded and added to it in chronological order, it allows market participants to keep track of digital currency transactions without central recordkeeping. Each node (a computer connected to the network) gets a copy of the blockchain, which is downloaded automatically.”
There are three kinds of blockchains- public, permissioned and private classified on the basis of who has access to it:
• Public blockchains are open-source. Anyone can be part of this type of blockchain i.e. anyone can participate in the transaction facilitated All those can see what blocks are getting added and thereby participate in the consensus process i.e. the process of what blocks get added to the chain and what the current state is.
A good example here is the Bitcoin blockchain.
Permissioned blockchain is a variation of public blockchain. The difference is in that the participants need a prior permission to be a member, with specific rights to validate the transactions etc. The right to read the blockchain may be public. Generally, it is restricted. The blockchain is now evolving as a 'bankchain' in the Indian banking Industry.
• Private blockchain is restricted to one organisation. Major applications include database management, transactions, auditing i.e. areas specific to a single entity where there is no need to make public - the ability to read or validate transactions.
Ripple in a way can be viewed as a private blockchain for payment transactions.
Now let us look into its relevance and applicability in today's banking system
Everyone is privy to the amount of time a simple payment remittance takes. Even if we have multiple options such as National Electronic Funds Transfer (NEFT) or Immediate Payment Service (IMPS). It's not the best option when you need to transfer money instantly. However, with blockchain technology it can be done in a fraction of a second.
The value of this can be seen with several Indian banks including State Bank of India, Axis Bank, ICICI Bank that have come together and formed a consortium called BankChain. The vision is to implement “blockchain solutions”. This is a 37 members consortium and has 10 live ongoing projects. Some of them include: Cross border remittance, Corporate KYC and Charge Registry, LoU, Bank Guarantees, LC & other Documentary Credits, Employee background verification, among others. If one bank were to process a high value loan, a verification into this distributed ledger will give adequate information for decision making.
The transparency, Integrity and irrefutability of blockchain technology may perhaps have prevented the Letter of Undertaking fraud that recently occurred in the Indian Banking industry.
More specifically, the two banking domains where the blockchain technology that has seen several proof of concepts are in Payments and Trade Finance. Ripple has productionised cross border payments on the blockchain platform. While time and process oriented trade finance is still in its infancy.
One can see an illustration from ICICI bank published on the use of blockchain and technology works. According to the press release, the bank had more than 250 corporates, including the country's leading companies signed up on the Bank's blockchain application to experience a more efficient time, cost, and secure way of undertaking domestic and international trade transactions.
The usage of blockchain technology simplifies the paper-intensive trade finance process by bringing counterparties on the same platform, enabling decision making in almost real time. It brings in the improved convenience of accurate and quick transactions on a digital platform, eliminating the need for paper documents across cities / countries and verification through trade intermediaries.
The Managing Director and the Chief Executive Officer (CEO) said, “ICICI Bank has a rich legacy of leveraging the latest technology to bring in new paradigms in banking. We were the first in the country and among few globally to pioneer cross-border open account trade finance and remittance transactions on blockchain. I am delighted to share that we have scaled up the operations to sign over 250 corporates on our blockchain solution for trade transactions, the maximum for any blockchain solution in the country. I envision that the emerging technology of blockchain holds an immense potential to simplify the document-intensive trade transactions by bringing all stakeholders on a single platform. In another initiative, we are also collaborating with peer banks and other partners to create a comprehensive ecosystem in the industry using blockchain and evolve common working standards to contribute to even greater adoption of this initiative.”