RBI – Reserve Bank of India, India’s central bank and responsible for regulating country’s banking system is planning to run a pilot test on use of blockchain technology for banking operations especially focussing on business loans.
In this project, the RBI has reportedly engaged top Indian banks such as HDFC, ICICI, Bank of Baroda and SBI and a few others among about 12 banks, according to a report of Economic Times. The paper says that with use of blockchain technology, there would possibly be a check on the flow of loan money lent to borrowers so as to prevent the frauds of the likes of Nirav Modi and Mehul Choksi. Mr Nirav Modi and Mehul Choksi are two of many who are being prosecuted by Indian authorities for allegedly defrauding banks of loan money.
The project will be using blockchain technology to trace the flow of money by keeping tab on peer to peer transactions among various stakeholders. The project is being helmed by RBI’s Innovation Hub in Bangalore with technological support from SettleMint, a Belgium based company, Corda Technology, a US based company and IBM, as per the sources of the report. Innovation Hub is a wholly owned subsidiary of RBI.
A blockchain is a type of Distributed Ledger Technology in which a database is shared among the blocks or nodes and managed by various participants. All the information is stored in digital format on a blockchain. The top feature of blockchain technology is the security of data transactions as there is no possibility of tampering or manipulating the record of transactions.
One of the main focus areas for the implementation of blockchain technolocgy in banking transactions would be in issue of Letter of Credits which are prone to misuse by borrowers. By issuing digital LCs (Letter of Credits) through blockchain based system, the issuer banks as well as RBI would be able to keep tab on movement of LCs among various stakeholders.
Blockchain based technology is one the basic component of the cryptocurrency or digital currency as well. Government of India has already announced that it will soon be issuing its own digital currency. However, it may be pointed out here that the RBI’s pilot project is independent of the process going on for digital currency, as per report.
