- 15 banks in India have formed a new company to process Letters of Credit within the country using blockchain technology.
- The public banks include the State Bank of India, Bank of Baroda, Canara Bank, and Indian Bank.
Blockchain, the technology behind Bitcoin has been explored in different sectors including swarm robotics and agriculture. One of the areas that have seen a full implementation of the technology is finance. It has been used widely as industry key players seek to offset the existing problems of the traditional financial methods. According to a recent report, 15 banks in India have formed a new company to process Letters of Credit within the country using blockchain technology. The report published by the Economic Times discloses that ten private banks, four public banks, and one foreign bank are involved in the new company called Indian Banks’ Blockchain Infrastructure Company (IBBIC).
The public banks are the State Bank of India, Bank of Baroda, Canara Bank, and Indian Bank.
Private banks include RBL Bank, ICICI Bank, HDFC Bank, Kotak Mahindra Bank, Axis Bank, IndusInd Bank, Yes Bank, South Indian Bank, Federal Bank, and IDFC First Bank. The foreign bank is Standard Chartered bank.
Disbursement on Letters of Credit will take four hours
Head of products, transaction banking at RBL Bank, Varun Bakshi in a statement mentioned that disbursement on domestic Letters of Credit usually takes four to five days. The establishment of this bank and the use of blockchain will drastically reduce the time to four hours.
The system will check and verify data for invoices on goods and services, tax, and e-way bills. In addition, it will eliminate paperwork to improve efficiency. Letters of Credit based on the blockchain come with other benefits which include eliminating fraud due to encryption. In some cases, two Letters of Credit are issued on the same invoices. This will not happen in the new system. The report estimates that the new bank will commence within a year.
Blockchain has been identified as the best technology for Letters of Credit as it streamlines the manual import and export documentation while improving security. It is important to note that in 2020, HSBC, one of the largest banks in the world completed its first blockchain Letters of Credit in Bangladesh. It was observed that the transaction led to a drastic reduction of processing time from five to ten days in the traditional method to 24 hours. Md Mahbub ur Rahman, CEO of HSBC Bangladesh expressed his satisfaction in the blockchain technology.
I believe this will usher in a new era of routing international trade transactions as businesses and governments recognize transparency, security, and swiftness in performing tasks using blockchain technology.
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