Blockchain Technology is Revamping the Indian Banking Industry

October 30, 2017 by Nema Daghbandan, Esq.

Following several years of anticipation, Indian banks are gradually making the initial moves towards transitioning a major component of financial infrastructure onto blockchain—the driving force behind the cryptocurrency Bitcoin. In October 2016, ICICI Bank conducted India’s first international trade transaction and overseas remittances via blockchain. The technology has also been utilized by other Indian banks, YES Bank, Kotak Mahindra Bank, and Axis Bank.

The concept of blockchain technology—systems created by a computer network in which each completed transaction carries a unique an unforgeable digital signature—has captivated the global financial industry for some time. The tech provides an innovative method for initiating and recording financial dealings without the need of a centralized authority. Recently, emerging entrepreneurs have started to push Bitcoin technology in competition with Indian IT service providers like Infosys and TCS in developing new banking software.

Primechain Technologies, an early startup, has generated a Bankchain for financial institutions to research, develop and implement blockchain capabilities in niches such as anti-money laundering, cross-border payments, and loan syndication. The company’s products have gained significant traction within the Indian banking sector. A total of 24 banks, including the State Bank of India, now use Primechain technology. The company hopes to scale up to over 750 member banks by 2019.

Similarly, Signzy, a two-year-old tech firm, is combining blockchain with artificial intelligence to give banks the ability to authenticate and identify an individual in only a couple of hours. The technology is disruptive for the banking industry, which in the past has relied on chains of consent that resulted in burdensome amounts of paperwork. The blockchain industry shows no sign of slowing down—in 2016 alone, over 32 blockchain firms opened in India, including MindDeft Technologies, Sofocle, Trestor, KrypC, and Haschcove.

Because blockchain’s protected, diversified, and tamper-guarded ledger addresses make intermediaries obsolete and payments almost immediate and at minimal cost, banks are considering the technology for a variety of operations including cross-border remittances. That is likely why the Reserve Bank of India (RBI) has expressed its tentative approval of blockchain as a means to assist the country’s financial sector. In early 2017, the RBI’s research department, the Institute for Development and Research in Banking Technology, announced blockchain implementation could lead to significant cost reductions, improved efficiency, and added transparency within the industry.

Blockchain is still often incorrectly conflated with bitcoin. However, the majority of businesses understand the distinctions between blockchain software and the cryptocurrency market, permission and permission-less blockchains, and private and shared blockchain systems. Increasingly partitioning the distributed ledger software will increase its security and reduce risks to banks. This development comes as welcome news to the Indian financial sector, which has the third highest perceived prevalence of fraud in the world.

The unique capabilities offered by blockchain has also garnered interest from the Indian government. Primechain Technologies has announced it is conducting preliminary negotiations with government agencies to implement blockchain technology to record land registries. Primechain believes the technology can be used in the future to reduce fraud and enhance productivity in other capacities as well, including supply chain management, healthcare, voting, and electronic record authentication.