15 Banks to Use Blockchain Technology to Process Letters of Credits in the first row
Blockchain Technology is Capable of Solving LC Problems of Banks
The most common problem faced by the banks while executing their processes using traditional banking methods is processing the Letters of Credit (LC), which are the letters issued by banks. These LC’s guarantee the sellers that the buyers will ensure to pay them on time. Blockchain technology can end the problems of processing Letters of Credit, GST invoices, and e-way bills that are done using traditional banking methods.
In the present day, the process of issuing LC is very slow as it requires human support to prevent frauds, authenticate transactions, and balance the ledger, which needs to be manually done. To make this process easy, many banks in India are coming forward to make use of Blockchain technology. It is a digital system, that can record the information where the possibility of cheating and hacking the systems are eliminated.
Blockchain technology is capable of solving all central issues along with elemental frauds. Blockchain technology can also eliminate most of the paperwork done in banks, it can reduce the time taken for processing transactions, and provides a platform for safer transactions. This can also be a big boon for medium and small-scale enterprises (MSMEs)in the country.
A total of 15 banks have agreed to use this new blockchain technology. Out of 15 banks, four are state-owned, 10 are private lenders and one foreign bank. The state-owned banks are the State Bank of India (SBI), Bank of Baroda (BoB), Indian Bank, and Canara Bank. The other 10 privately owned banks are ICICI Bank, HDFC Bank, Kotak Mahindra Bank, Axis Bank, RBL Bank, Industrial Bank, Yes Bank, South Indian Bank, Federal Bank, and IDFC First Bank. The lone foreign bank is Standard Chartered. All the major 15 banks are planning to form a new company called ‘Indian Bank’s Blockchain Infrastructure Company Private Limited (IBBIC) investing Rs 5 crore each, in dealing with transactions easily. The procedures for setting up this company are likely to be completed by June 30. The total capital of the IBBIC will be Rs 75 crore.
The new blockchain technology is likely to be coming into force within a year. Every bank on the list will have an equal share of 6.66% and the board comprises five-member shareholders. This can motivate other banks to join the blockchain very soon. The shareholder directors are set to be appointed through a rotational policy according to the ET report.
The Head of Products and Transaction Banking at RBL, Varun Bakshi talking about blockchain technology said, “Disbursements on domestic LCs, which takes four to five days, can now be done within four hours”.
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