HDFC Bank, ICICI Bank and State Bank of India are among nearly a dozen top lenders the central bank is engaging with to run a blockchain-based pilot project centred on trade financing, reported Economic Times.
If successful, it could help prevent loan frauds by the likes of Nirav Modi and Mehul Choksi, fugitive borrowers that gamed the system to siphon off thousands of crores of rupees.
Belgium-based SettleMint, USbased Corda Technologies and IBM would provide technology support for the project driven by the Reserve Bank of India’s (RBI) Innovation Hub in Bangalore, three people familiar with the matter said, ET reported.
Axis Bank, Bank of Baroda and Union Bank of India are also involved.
The pilot project, called ‘proof of concept’ in industry parlance, will harness blockchain technology where ‘blocks’ of transaction data are stored in ‘chains’ with peer-to-peer access to enhance traceability of money flow.
“We are participating and supporting the initiative,” said a Bank of Baroda spokeswoman.
The RBI, other banks and technology partners did not respond to ET’s queries.
Different technology providers are engaging with select individual banks under the stewardship of the RBI. “This is to assess how blockchain can facilitate and secure our banking system,” said one of the persons cited above.
Tampering of documents like Letters of Credit (LC) is one of the project’s focus areas, and blockchain technology can help prevent the misuse of LCs.
The objective is to make blockchain technology a part of the Core Banking System (CBS). This particular project will test the application of the technology before it becomes established practice.
Blockchain technology is increasingly gaining significance in the banking system. The RBI is likely to use the same technology for the proposed central bank digital currency project, too.