rbi blockchain: RBI contacts top banks including HDFC, ICICI, SBI for blockchain-based trade financing project

HDFC bank, and is among almost a dozen top lenders the central bank collaborates with to run a blockchain-based pilot project centered on trade financing. If successful, it could help prevent loan fraud by the likes of Nirav Modi and Mehul Choksi, fleeing borrowers who played the system to siphon thousands of millions of rupees.

Belgium-based SettleMint, US-based Corda Technologies and IBM will provide technology support for the project run by the Reserve Bank of India (RBI) Innovation Hub in Bangalore, said three people familiar with the case to ET.

and is also involved.

The pilot project, called ‘proof of concept’ in industry language, will utilize blockchain technology where ‘blocks’ of transaction data are stored in ‘chains’ with peer-to-peer access to improve the traceability of cash flow.

“We participate in and support the initiative,” said a spokeswoman for the Bank of Baroda.

RBI, other banks and technology partners did not answer ET’s questions.

Various technology suppliers collaborate with selected individual banks under the leadership of RBI.

“This is to assess how blockchain can facilitate and secure our banking system,” said one of the people quoted above.

Prevention of LC fraud
Tampering with documents such as Letters of Credit (LC) is one of the project’s focus areas, and blockchain technology can help prevent misuse of LCs.

The goal is to make blockchain technology part of the Core Banking System (CBS). This special project will test the use of the technology before it is established practice.

“The pilot has started with banks to run blockchain-supported systems to issue digital LCs,” said a leader involved in the process.

Blockchain technology is becoming increasingly important in the banking system. The RBI will probably use the same technology for the proposed digital currency project at the central bank as well.

However, the pilot project focusing on trade finance is different in scope and application than that involved in building a digital currency.

About two weeks ago, RBI Innovation Hub, a wholly owned subsidiary of the central bank, conducted a three-day workshop with banks in Mumbai where participating lenders got hands-on trading on Distributed Ledger Technology (DLT), said one of the people quoted above.

Blockchain is a distributed ledger that uses independent computers to record, share and synchronize transactions in electronic ledgers, according to the World Bank.

About a year ago, 15 banks had joined forces to establish a new company that would use blockchain technology to process LCs. The company, dubbed the Indian Banks’ Blockchain Infrastructure Co. (IBBIC), was intended to bring blockchain technology ahead of the banking system in the wake of the LC scandal.

. The current status of the proposed company is not clear.

“We do not know what is happening there, as this RBI pilot project may well be an option,” said an official working in the blockchain area.