Belgium-based SettleMint, US-based 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 told ET.
, and 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.
Preventing LC Fraud
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.
“The pilot has begun with banks to run blockchain-backed systems to issue digital LCs,” said an executive involved in the process.
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.
However, the pilot project focused on trade financing is different in scope and application from that involved in building a digital currency.
About two weeks ago, the RBI Innovation Hub, a wholly owned subsidiary of the central bank, conducted a three-day workshop with banks in Mumbai where participating lenders were given hands-on trading on Distributed Ledger Technology (DLT), said one of the people cited above.
Blockchain is a distributed ledger that uses independent computers to record, share and synchronise transactions in electronic ledger, according to the World Bank.
About a year ago, 15 banks had come together to establish a new company that was supposed to use blockchain technology for processing LCs. The company, christened as Indian Banks’ Blockchain Infrastructure Co (IBBIC), was meant to bring blockchain technology to the forefront of the banking system in the aftermath of the LC scandal at the
. The current status of the proposed company is not clear.
“We do not know what is happening there as this RBI pilot project could well be an alternative,” said an official working in the blockchain space.