RBI taps leading banks to facilitate blockchain-based trade financing

RBI taps leading banks to facilitate blockchain-based trade financing

The central bank is reportedly engaging with nearly a dozen top lenders including ICICI Bank, HDFC Bank, and State bank of India to run a blockchain-based pilot project which emphasizes on trade financing.

If the project worked successfully, it could help in preventing big loan scandals and frauds like the one done by Nirav Modi and Mehul Choski who played with the system to siphon off huge amounts of money.

US-based Corda Technologies, Belgium-based SettleMint and IBM will extend technology support for the project initiated by the Reserve Bank of India. Union Bank, Axis Bank, and Bank of Baroda are also involved in the initiative.

The pilot project, addressed as ‘proof of concept’ in the industry parlance, aims to tap blockchain technology where ‘blocks’ of the transaction are stored in ‘chains’ to improvise the traceability of money flow.

Unauthorized alterations of confidential documents like LC (letters of Credit) are one of the primary focused areas of the project, and blockchain technology can definitely help in preventing the misuse of LCs.

Furthermore, the aim is to make blockchain technology a crucial part of the banking system. This initiative by RBI will thoroughly test the application of blockchain technology before it becomes functional.

According to a credible source, the pilot project has begun with banks to operate blockchain-backed systems to issue digital LCs.

Furthermore, the RBI innovation hub, a wholly-owned subordinate of the central bank, recently delivered a 3-day workshop to banks in Mumbai where the participating banks were provided hands-on trading on DLT (Distributed Ledger Technology).

Blockchain technology is rapidly gaining prevalence in the banking system, Central bank is likely to deploy the same technology for the central bank digital asset project too.

However, the pilot project that is working majorly on trade financing is different in terms of scope and application from the digital currency project.

Source Credit: https://economictimes.indiatimes.com/industry/banking/finance/banking/rbi-taps-top-banks-including-hdfc-icici-sbi-for-blockchain-based-trade-financing-project/articleshow/92401864.cms