This initiative has thereby reduced the time taken for a letter of credit (LC) to few hours from 20 to 30 days, reported The Economic Times.
LC – a negotiable instrument, is a critical document required for both domestic and international trade finance, and is also one of the toughest documents to process in banking. The time involved in completing the process hinders the exporters from utilising their sale proceeds efficiently.
“We envision a future where banks will collaborate and participate on Blockchain consortium, which will help improve the operational efficiency, reduce the risk of fraud and improve the customer experience in key offerings,” a statement from Kotak Mahindra Bank said.
“There can be applications of the technology to know the customer’s requirements, cross-border payments, Exim finance, supply chain finance, syndicated loans, regulatory audit and reporting,” it added.
Blockchain solutions is a distributed database that maintains an inevitably growing list of ordered records called blocks.Prior to Kotak Mahindra Bank, private lenders including ICICI Bank, Yes Bank and Axis Bank have previously disclosed using the blockchain technology in their operations.
“It is 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,” said the bank.
“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,” said KVS Manian, president for corporate, investment and institutional banking, Kotak Mahindra Bank.
“Indian banks are experimenting with blockchain applications in various areas including the paper-intensive processes of trade finance and supply chain financing segments, which are ripe for disruption,” he added.
“ The bank has partnered with consulting firm Deloitte and used the blockchain technology to complete LC transactions with JP Morgan Singapore as partner bank,” the bank 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.