India’s largest bank — State Bank of India (SBI) — is set to launch blockchain-backed smart contract functionalities by the end of December 2017. This is a significant move for the bank, especially considering recent movements from the Indian government to restrict cryptocurrency use in the country.
Sudin Baraokar, head of innovation at SBI, said that India’s central bank was leading the way for more than two dozen other Indian banks to begin using smart contracts:
“By next month, we should have two beta production solutions ready for use by the 27 banks. We will also invite further participation. The beta production that will be ready are smart contracts and KYC.”
The program is part of BankChain, a regulatory “sandbox” program for Indian banks to research, build, and apply blockchain tech to the banking sector. The initiative was taken to ensure security and transparency in the financial industry.
BankChain Community: A New Revolution for Banks?
The BankChain community is a group of 27 banks — 22 Indian and five Middle-Eastern banks — that have joined forces to explore blockchains.
America’s Intel Corporation is the technical advisor to the community while Microsoft is the chosen cloud partner. Intel will ensure that technical implementations go smoothly.
Of course, the blockchain is a distributed and decentralized ledger that stores information between two parties. SBI’s blockchain beta program, then, will facilitate smart contracts to record agreements among and within the banks of BankChain.
SBI’s aforementioned Barokar went on:
“Smart contracts can be used for simple things like non-disclosure agreement […] rather than signing forms. A lot of internal processes can be contracted. We do a lot of IT procurement, a lot of it can be implemented using blockchain.”
Additionally, Indian IT giants TCS and Infosys are also contributing to building central contracts platforms for the banks involved.
Specific Upcoming Blockchain Projects from BankChain
Startup company Primechain Technologies will be responsible for managing the BankChain ecosystem going forward.
Future projects to be introduced for BankChain members are listed below:
- Secure documents
- Peer-to-peer payments
- Asset registration
- Loan syndication
- Blockchain security controls
- Know-Your-Customer compliance
- Blockchain repositories
- Trans-national payments
When all of these functionalities are added, then, India’s top banks may very well go paper-less entirely.
The Transformation Is Beginning
For banks, the revolutionary potential of blockchain comes from its ability to thoroughly transform the crucial Know-Your-Customer (KYC) process.
Implementing this technology will allow verification of a single client by one corporation, which can be accessed by other companies, preventing the procedure from being repeated needlessly. The administrative cost-cutting here can be huge for financial institutions.
Smart contracts will also be immutable, as entries made on the blockchain can neither be altered nor tampered with, increasing transparency and security. The introduction of blockchain tech will also eliminate all intermediaries in processing payments.
Why Banks Are Advancing Towards Blockchain Technology
Banks around the world are throwing their weight into the pioneering blockchain for several reasons, but cost-effectiveness is likely the main motivation.
Presently, the banking sector is suffering from failing infrastructure and high maintenance costs.
Blockchain technology will cut costs significantly and also allow banks to compete with fintech startup companies that are already developing distributed ledger technologies.
Indeed, the banking sector’s rat race to move on-chain is only just beginning.
Will more banks adopt the innovative blockchain technology to survive the competitive market? Let us know your views in the comment section below.
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