SBI, HDFC, ICICI & 12 Banks Will Use Blockchain For Letter Of Credit: How Startups Will Benefit?
Banks in India are collaborating to use blockchain technology to solve a critical issue in traditional banking.
It aims to make the process easier by eliminating paperwork, reduce transaction processing time, and offer a secure environment.
It solves the common problems of traditional banking-the processing of Letters of Credit (LCs), GST invoices, and e-way bills.
The SBI, India’s largest public sector bank, has formed a new company called the Indian Banks’ Blockchain Infrastructure Company Private Limited (IBBIC) with ICICI Bank, Kotak Mahindra, Axis Bank, and 11 others to lead this transformation.
Blockchain Technology To Solve A Central Problem
The bank will use blockchain technology to solve a key issue in traditional banking: the processing of Letters of Credit (LCs), GST invoices, and e-way bills.
Issuing an LC is a time-consuming process that necessitates human intervention to prevent fraud, authenticate transactions, and balance the ledger.
The use of blockchain to issue LCs could potentially solve these problems. Even simple fraud, such as issuing two LCs on a single invoice, can be easily avoided with the help of blockchain technology.
The new system is expected to go live within a year, with each bank owning 6.66 per cent of the company.
How It Will Affect The MSMEs?
It could be beneficial to medium and small-scale businesses (MSMEs).
The technology is entirely based on the tokenisation concept. This assists in the transformation of sensitive data into nonsensitive data that can be leveraged by multiple parties in a series.
It also aids in the preservation of data’s authenticity and, in a roundabout way, enables digitisation.
To put it simply, a basic invoice can be converted into a token, which can then be used to settle payments, overheads, and other adjustments.
For medium and small scale enterprises (MSMEs), this could be a game-changing innovation.
Tokenisation would speed up approvals, disbursements and settlements, and reduce the likelihood of fraud across all of its transactions, assets, liabilities, and more.
Out of the 15 banks, eleven are privately held by investors while four are public sector units.
HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Axis Bank, IndusInd Bank, Yes Bank, RBL Bank, IDFC Bank, South Indian Bank, and Federal Bank are among the private banks. Bank of Baroda, SBI, Canara Bank, and Indian Bank are among the public sector units.
The consortium’s only international participant is the American lender Standard Chartered.
The system will be built on Infosys’ Finacle Connect, a blockchain-based platform for digitising and automating trade-related finance processes.