India’s central bank, which controls the issue and supply of the Indian rupee, Reserve Bank of India (RBI) seems to have been vouched for distributed ledger technology and blockchain technologies.
In an article published in RBI Bulletin February 2020 it said that Distributed Ledger Technology (DLT) and Blockchain have developed considerably in features and complexity to offer solutions to various industries including the financial sector.
Many central banks across the globe have started pilot projects to study and understand DLT and explore the viability of conducting inter-bank settlements, settlement of digital assets and tokens and cross-border payments across DLT platforms with functionalities of the existing system.
With this new trend emerging, RBI and Indian government have supported innovations and emerging technologies through regulatory sandbox and various other schemes that would pave the way for the new economy, enriched with technology-centric growth momentum.
DLT, Blockchain adoptions
In recent years, adoption of DLT and blockchain in India has increased in both public and private sectors, although most of the projects are in the proof-of-concept phase. In fact, the public sector is emerging as a big user of blockchain-based solutions.
Since 2018, some state governments like Andhra Pradesh and Telangana have started blockchain-related solutions in the areas of land registry, digital certificates, electronic health records, etc.
In the past few years, private banks and companies are leading in adoption of blockchain-based solutions. Yes Bank in July 2019 issued commercial papers on blockchain and Axis Bank launched an international payment service using Ripple’s enterprise blockchain technology in November 2017.
India biggest private sector company, Reliance Industries Ltd and HSBC India executed blockchain-based trade finance transaction in November 2018.
In order to safe guard
Volatility olThe paper also listed few DLT applications Following Bitcoin, there have been various start-ups dealing with cryptocurrency in India such as Unocoin in 2013 and Zebpay in 2014 (Tracxn, 2019).
However, the volatility in Bitcoin prices and the instances of frauds have brought to the fore regulatory concerns over the risks of cryptocurrencies. Both the Government of India and the Reserve Bank have indicated that they have not authorised or issued F and, hence, individuals have no legal protection in dealing with cryptocurrencies and would bear all the risks associated with it.
In fact, the Reserve Bank has issued several press releases (Dec 24, 2013, Feb 01, 2017, Dec 05, 2017) warning against dealing in cryptocurrencies. Sensing the rising risks caused by speculative dealings in cryptocurrencies and to safeguard domestic depositors and financial institutions, the Reserve Bank in April 2018 prohibited its regulated entities from offering its services to companies dealing with cryptocurrencies or virtual currencies (VCs). However, the authorities have recognised the usefulness of blockchain and DLT (Table 2).
Against this backdrop, it is critical for institutions in India to understand the potential benefits and risks associated with DLT to reap the benefits of digital innovation.
In recent years, adoption of DLT and blockchain in India has progressed in both public and private sectors, although most of the projects are in the proof-of-concept phase. In fact, the public sector is emerging as a big user of blockchain-based solutions.
Some state governments like Andhra Pradesh and Telangana have started blockchain-related solutions in the areas of land registry, digital certificates, electronic health records, etc., (Government of Andhra Pradesh, September 2018).
In the private sector, banking and financial services sector is leading in adoption of blockchain-based solutions. Illustratively, these initiatives include: Yes Bank implementing issuance of commercial papers on blockchain (Yes Bank, July 2019); Axis Bank launching international payment service using Ripple’s enterprise blockchain technology (Axis Bank, November 2017); and HSBC India and Reliance Industries Ltd. executing blockchain-based trade finance transaction (HSBC India, November 2018).
Government supporting emerging technologies
In the Union Budget 2020-21, the government proposed various measures, emphasising on the new economy based on emerging technologies such as artificial intelligence, machine learning, internet of things, etc. Government is also working to bring a regulatory environment around DLT and blockchain technology as more startups and investments are expected.
The government also proposed to defer the tax payment on shares allotted by the start-ups to their employees under the employee stock option plans (ESOPs), which would not only provide new avenues for start-ups to grow and flourish but also generate new investment and employment opportunities.
In the span of a decade, DLT and blockchain have developed considerably in features and complexity to offer solutions to various industries including the financial sector. Initially, the understanding of DLT was confined to computer scientists and few other curious individuals due to their complexity. However, with applications in finance and other areas, there is widespread interest in DLT.
Some central banks, in collaboration with other institutions, have undertaken pilot projects to study and understand DLT and explore the potential benefits to their operations and the financial systems.
So far, most of these projects have been experimental in nature to explore the viability of conducting inter-bank settlements, settlement of digital assets and tokens and cross-border payments across DLT platforms with functionalities of the existing system.
It is important to note that most of these central banks have not yet expressed the intent to deploy the DLT-based applications into production. Even in the case of CBDC, the Riksbank, inter alia, has stated that DLT in its present forms is immature to be used for implementation of e-krona.
Nevertheless, such projects with their consequential benefits add to the ability of central banks and regulators in guiding development of DLT-based financial market infrastructure. This also enables the central banks in providing productive guidance to start-ups and institutions as they embark on adoption of new technologies for providing effective and efficient solutions to business problems.
Six Indian banks using blockchain for remittances
India gets billions of dollars every year from its work force working in other countries, but it few days of days for various procedures such as verification, presentation, recording, and reconciliation of invoices.
In order to process the payment in a real-time basis, Indian banks have decided to opt for blockchain technologies.
Let us look at five banks that have decided to adopt new technologies for remittances and other banking operations.
Yes Bank is the first Indian bank that has decided to adopt blockchain technologies for banking transactions. It will be using IBM’s HyperLedger Fabric to invoice purchases and the general flow of money in the bank’s systems.
For remittances, the bank has partnered with Ripple, a company looking to solve cross-border payments through the use of blockchain and digital assets. The bank believes that this technology will disrupt SWIFT, the incumbent for cross-border payments.
Speaking on adopting XRP, Yes Bank’s Group President, and Head, Global Indian Banking Amresh Acharya said that this technology will disrupt SWIFT, the incumbent for cross-border payments. The bank is a majority holder of the second largest digital asset in the world known as XRP, and will be using state-of-the-art technological innovation.
which the banks are looking to curtail.
abroad every year
Yes, Bank is one of the first Indian banks to adopt blockchain for invoice financing tool. This will utilise IBM’s HyperLedger Fabric to invoice purchases and the general flow of money in the bank’s systems. Bajaj Electrical and 32 other vendors have been brought on board to the platform to enable the use of next-gen invoicing.
Before the implementation of the system, the process used to take up to 4 working days for various procedures such as verification, presentation, recording, and reconciliation of invoices. Now with the use of blockchain and IBM Watson Conversation, the process has been reduced from four days to almost real-time.
Yes, Bank also partnered with Ripple, a company looking to solve cross-border payments through the use of blockchain and digital assets. The company is the majority holder of the second-largest digital asset in the world known as XRP and is set to disrupt SWIFT, the incumbent for cross-border payments. Amresh Acharya, Group President, and Head, Global Indian Banking at Yes Bank, stated, “We are glad to partner with Ripple to realize the enhanced efficiencies of blockchain for real-time cross-border payments. This partnership is a continuation of YES BANK’s ethos of using state-of-the-art technological innovation.”
India’s third-largest bank with over 4500 branches will be using inward remittance solution based on the blockchain technology.
For this, the bank will be using Ripple’s XRP for and has also partnered with UAE based RAK Bank for delivering its retail clients based in the Middle East.
The bank said that Ripple makes international remittances faster and transparent for customers while ensuring security and improving efficiencies. The transactions reach their destination account in minutes, with certainty of settlement, and with end-to-end visibility over the journey of the payment.
Banks’ official said will using APIs and distributed ledger technology, there is an opportunity to radically change the way international payments are handled.
Axis Bank also established itself as a pioneer in the Indian blockchain space. The bank has initiated an inward remittance solution based on the blockchain. This project was conducted in union with RAKBank, using which it will deliver services for the retail customers of the Middle East. And for blockchain-powered remittance product, Axis Bank teamed up with Ripple. All of its remittance products using blockchain use Ripple’s technology.
Industry reports also indicate that the company has also revealed that they have a positive view of blockchain in remittance services. Axis Bank top-level executive stated that corporate banking operations will see the use of blockchain before retail businesses. This is due to their differentiating factors such as speed and cost of the transactions, along with the efficiency and ease of conducting them.
V Srinivasan, Deputy Managing Director, Axis Bank stated, “Remittances have been a key strategic area for us. We are excited with the potential of blockchain technology and how it could deliver in enabling real-time, affordable money transfers. We started the work with Ripple and are in active discussions with other banks on the network.”
Himadri Chatterjee, President, Transaction Banking, Axis Bank, said, “While there have been significant innovations in domestic payments, cross border remittance has seen limited developments. Using APIs and distributed ledger technology, there is an opportunity to radically change the way international payments are handled. We are excited with the potential the technology has to bring innovative services to the market and help us enhance value to our customers.”
At a recent event in New Delhi, India, the Axis Bank official spoke about the bank’s partnership with the Brad Garlinghouse led Ripple. During his statements, Garg was asked about the landscape of cross border transactions in the country and how it has been affected by Ripple. To this, Garg replied:
“The entire expansion of cross border transactions happened at a time when crypto was becoming popular. The usage of platforms and the number of partnerships would increase only if the number of institutions and partners entering the field increases. Currently, the numbers are limited but there is definitely a steady increase.”
Garg also mentioned about Ripple’s partnerships with Standard Chartered Bank in Singapore and Rak Bank in the United Arab Emirates [UAE]. He reiterated that once the number of alliances increases in the system, the size of the system, as well as the transaction volume, would also increase.
Axis Bank, India’s third-largest private sector bank, has launched instant international payment services using Ripple’s enterprise blockchain technology solution. The bank has launched a service for its retail customers in India to receive payments from RAKBANK in UAE and for its corporate customers in India to receive payments from Standard Chartered Bank in Singapore. Ripple makes international remittances faster and transparent for customers while ensuring security and improving efficiencies. The transactions reach their destination account in minutes, with the certainty of settlement, and with end-to-end visibility over the journey of the payment.
Kotak Mahindra Bank
India’s fourth-largest private bank, Kotak Mahindra Bank with 1600 branches also decided to opt for Ripple blockchain-powered architecture for cross-border payments.
The bank said that by using blockchain, it is not only looking to reduces the costs associated with remittances but also increase the speed from half a day to 3 days to near-instant remittance. The current cost will be reduce by 10-40%, along with increased interoperability with other Ripple partners such as Axis and Yes Bank and 200 others.
Banks chief digital officer Deepak Sharma said, “We are theoretically convinced that blockchain is the way ahead. But we have to establish a practical use of the technology. As of now, the focus is on whether the technology is scalable in the near future.”
There seems to be only one company gaining ground in the India market for cross-border payments. Ripple’s name shows up once again as a technology provider to Kotak Mahindra, giving them access to their blockchain-powered xCurrent architecture. This not only reduces the costs associated with remittances but also increase the speed from half a day to 3 days to near-instant remittance. Costs are set to reduce by 10-40%, along with increased interoperability with other Ripple partners such as Axis and Yes Bank and 200 others.
Further proof comes from Deepak Sharma the Chief Digital Officer at Kotak Mahindra, India’s second-largest private bank by size and market cap as of April 2019.
Boasting a network of 1,369 branches and 2,163 ATM machines and 50,000 employee’s you start to see the kind of financial clout Kotak has in India.
Provide instant settlements on a highly secure infrastructure
In order to leverage new technologies, IndusInd Bank has also decided to use Ripple’s blockchain technology. With this, the bank will now have instant remittance access markets such as Brazil and China through RippleNet.
Explaining how this will enhance banking business, IndusInd Bank Senior Executive Vice President Ramesh Ganesan said that Blockchain technology for payments lowers both costs and transfer times for their customers. The Ripple platform will provide an enhanced experience to our clients by delivering instant settlements and confirmations on the back of a highly secure infrastructure.
The bank also plans to leverage the latest technology to build on its existing footprint in the payments business through this alliance.
Digitises paper-intensive international trade finance process as a distributed and unalterable ledger
ICICI Bank was the first Indian bank in India to use blockchain solutions for authenticating remittance transactions and international trade documents.
For this, the bank has partnered with Emirates NBD for remittance and trade finance. Under this, transactions were allowed for the instant remittance of funds from Mumbai to Dubai in real time. The bank has on-boarded over 250 corporates on this platform.
The blockchain application was created by ICICI Bank and it help digitises the paper-intensive international trade finance process as an electronic, distributed and unalterable ledger, and gives the participating entities including banks the ability to access a single source of information. It enables all the parties- buyers and sellers across domestic & international locations, all branches and locations of ICICI Bank in the country and overseas, to view the data in real-time. It also allows them to track documentation and authenticate ownership of assets digitally and execute a trade finance transaction through a series of encrypted and secure digital contracts.
The bank said that the usage of blockchain technology simplifies the paper-intensive trade finance process by bringing counterparties on the same platform, enabling decision making in almost real-time. It brings in the improved convenience of accurate and quick transactions, eliminating the need to wait for the courier of paper documents across cities / countries and verification through trade intermediaries. This is in contrast to the current process wherein counterparties await the receipt of lengthy paper trails to initiate domestic/international trade finance transactions.
Blockchain ensures safer, secured cross-border transactions
Federal Bank too has joined in adopting blockchain technology by partnering with Ripple for cross-border remittances solutions.
The bank has informed the Bombay Stock Exchange (BSE) that it has entered into a partnership with Ripple Inc, a blockchain supported global remittance company, for cross border remittance through its network. Powered by blockchain-enabled solution, the Ripple platform ensures cross-border transactions much safer and secured.
This partnership will help Federal Bank to explore new corridors where Ripple is aggressively pursuing new partnerships. Banks’ MD & CEO Shyam Srinivasan signed the partnership agreement with Ripple’s Senior Vice President John Mitchell, the bank said in the filing.
What does Ripple say?
Ripple’s Software Integration Engineer Sachin Maheshwari said that RippleNet has dozens of banks using their distributed ledger technology already.
Right now many Indian banks are using RippleNet to complete thousands of transactions to the Middle East and reports say it only takes on to 3 minutes compared to days as it had always been.