Fifteen banks have formed a new company with a focus on using blockchain technology to process letters of credit for domestic transactions in 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. E-way bills refer to electronic-way bills, which is a way to track the movement of goods and services electronically to make sure commerce complies with tax laws.
Executing letters of credit on blockchain has been tested before, but IBBIC's move marks the first attempt for domestic trade finance, according to the report.
Domestic letters of credit 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 are 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 letter-of-credit system can eliminate fraud because of encryption and because no two letters of credits would be able to be issued for the same invoice, which "sometimes happens".
The new venture is expected to commence within a year, according to the report.