With several leading banks proactively investing in blockchain platforms as part of their digital transformation initiatives, the Indian banking sector is set to witness growth in the mainstream use of blockchain technology in 2020 and beyond, says GlobalData, a leading data and analytics company.
ICICI Bank, Axis Bank and Yes Bank, which have been at the forefront of blockchain efforts in the country, have joined JP Morgan’s blockchain platform, ‘the Interbank Information Network (IIN)’ in September 2019, which enables faster cross-border payments by providing secure exchange information to banks at lower cost.
Earlier in 2019, 11 Indian banks, including ICICI, Axis, Yes Bank, HDFC, Kotak Mahindra, Standard Chartered, RBL and South Indian Bank, have formed a consortium to introduce and run a blockchain-linked loan system for small and medium enterprises in the country. Bank of Baroda, the State Bank of India (SBI) and IndusInd Bank are involved in this consortium as outside members.
Sandeep Kolakotla, Technology Analyst at GlobalData, says: “Blockchain is one of the key technology themes for the country’s banking sector with almost all leading banks engaged in some blockchain related initiative or the other.”
ICICI Bank, for instance, on-boarded over 250 enterprises on its blockchain platform for domestic and international trade finance in 2019, besides engaging with 10 more banks in a consortium established for leveraging the blockchain distributed ledger platform. The bank also deployed blockchain technology for automating inter-bank processes for trade finance and remittances, which helped it not only to reduce the processing time and transaction costs, but also resulted in cutting down the use of paper at an industry level.
Even public sector banks are not left behind in the race to use the blockchain technology. SBI, for instance, has been working on the use of blockchain technology for remittances, reconciliation and trade finance. The company has already rolled out blockchain-based smart contracts and KYC solutions and is also a founding member of the ‘Bankchain’ consortium, which focuses on the development and practical application of blockchain technology in the banking sector.
Kolakotla adds: “The banking sector in India is going through a transformative period with regards to the adoption of new technologies and the implementation of blockchain as part of the efforts of the banks to improve their efficiency and create highly secure banking transaction channels.”
The use of blockchain is particularly beneficial for bringing accountability into the trade financing, as the country’s banking sector has been struggling with loans turned into non-performing assets (NPAs). A blockchain exchange for NPAs can help banks have a database of documents related to assets, obtain data driven price discovery of stressed assets, and most importantly automate and streamline the efforts to sell NPAs. Blockchain technology also enables banks to monitor the movement of borrowed funds and its end-use, which can also lead to the reduction of NPAs.
Kolakotla concludes: “While it is still early days for blockchain in the country’s banking sector with banks using it on an experimental basis, the recent collaborative efforts of the leading banks indicate a more widespread adoption going forward. In addition, with the Ministry of Electronics and Information Technology currently preparing an approach for developing a ‘National Level Blockchain Framework’, the technology’s potential for mainstream use in the banking sector is only set to increase further in the coming years.”