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Fifteen banks have formed a new company with a focus on leveraging blockchain technology to process letters of credit (LC) for domestic transactions within India.
According to a report by the Economic Times on Tuesday, 10 private sector banks, four public sector banks, and a foreign bank have forged the Indian Banks’ Blockchain Infrastructure Company (IBBIC).
The company’s new system will verify the data for invoices on goods and services tax and e-way bills, eliminating paperwork and significantly reducing transaction times.
While experimentation and execution of LCs on blockchain rails has been done before, IBBIC’s move marks the first attempt for domestic trade finance, according to the report.
Domestic LCs act as sureties for the seller that goods or services will be paid for when they eventually arrive.
RBL Bank, ICICI Bank, HDFC Bank, Kotak Mahindra Bank, Axis Bank, IndusInd Bank, Yes Bank, South Indian Bank, Federal Bank, and IDFC First Bank make up the 10 private banks.
The four public sector banks include the State Bank of India, Bank of Baroda, Canara Bank and Indian Bank, while Standard Chartered is the foreign bank involved in the new company.
“Disbursements on domestic LCs, which used to take four to five days, can be done in four hours,” said Varun Bakshi, head of products, transaction banking at RBL Bank.
Bakshi also said a blockchain-based LC system can eliminate fraud due to encryption and the fact that no two LCs would be able to be issued on the same invoice which “sometimes happens”.
The new venture, which will be an open architecture model, is expected to commence within a year, according to the report.
See also: Standard Chartered Claims First Yuan-Based Letter of Credit Issued on a Blockchain
