Private sector lender Kotak Mahindra Bank today said it has used blockchain for a letter of credit transaction, and with many peers using the same tech, envisioned a consortium of banks for it.
"We envision a future where banks will collaborate and participate on Blockchain consortium which will help improve operational efficiency, reduce risk of fraud and improve the customer experience in key offerings," it said.
The statement said there can be applications of the technology for konow your customer requirements, cross border payments, Exim finance, supply chain finance, syndicated loans, regulatory audit and reporting.
Blockchain solutions is a distributed database that maintains a continuously-growing list of ordered records called blocks. Other Indian lenders, including ICICI Bank, Yes Bank and Axis Bank have previously disclosed using the blockchain technology in their operations.
KMB said its LC transaction has helped reduce the time of processing to two hours from the up to 30 days involved earlier.
Claiming it to be the first Indian lender to successfully complete the proof of concept (PoC) for end-to-end trade finance transaction for one of its clients, Kotak Mahindra Bank said it will be extending the same to all customers.
"While instant money transfers have progressed significantly, trade finance in India has a lot of catching up to do. Blockchain, the 'distributed ledger' technology has emerged as an object of intense interest," its president for corporate, investment and institutional banking KVS Manian said in the statement.
He added Indian banks are experimenting with blockchain applications in various areas including paper intensive processes of trade finance and supply chain financing segments, which are ripe for disruption.
The bank said the LC is one of the most tedious documents to process in banking, the time taken for a transaction deprives exporters from utilising their sale proceeds efficiently.
Verifying, approving and documenting process takes time given that multiple parties from different countries with varied regulatory frameworks are involved in the process, it said, adding blockchain eliminates duplicity of data and integrates data to a central cloud-based access system.
The bank partnered with consulting firm Deloitte and used the blockchain technology to complete LC transactions with JP Morgan Singapore as partner bank, it said."This transaction is the beginning of a journey on integrating Blockchain and moving towards full-scale adoption, thus giving Indian importers, exporters and domestic traders the best solution," Manian said.