The Reserve Bank of India (i.e., RBI) has collaborated with leading financial institutions in India to run a blockchain-based pilot project focused on trade financing. The main goal of the project is to make blockchain technology a part of India’s core banking system

A report from the Economic Times (ET) reveals that the central bank’s innovation lab in Bangalore is in charge of the project. U.S. companies like IBM and Corba Technologies, as well as a Belgian company called SettleMint, are helping with the necessary technology.

Currently participating in the pilot are prestigious banks, including HDFC Bank, ICICI Bank, and State Bank of India (SBI). Additionally engaged are the Union Bank of India, Axis Bank, and Bank of Baroda.

If it is successful, the “proof-of-concept” project will increase transparency and lower fraud in bank lending operations. It will do this by using blockchain technology to keep Letter of Credit (LC) records that cannot be altered.

This collaboration will help to understand how blockchain technology can help and protect India’s financial system. The pilot project has started with banks running blockchain-backed systems to issue digital letters of credit.

According to reports, the RBI Innovation Hub ran a workshop for employees of the participating banks to get them familiar with distributed ledger technology (DLT).

Though a similar strategy will also be used, the project is acknowledged to be wholly independent of India’s central bank’s digital currency (CBDC) plans. It may also be a response to the LC crisis at the Punjab National Bank the year before.

Adoption of Blockchain Technology in India

India has demonstrated that it is amenable to the underlying blockchain technology even while it opposes the widespread use of digital assets. India wants to get its blockchain-backed CBDC out into the world as soon as possible.

RBI deputy governor T. Rabi Sankar says that the bank recently stated that the CBDC deployment is one of its top projects for the fiscal year 2022–2023.

India is also working on additional blockchain-related projects with important local and international partners. It is working with the World Bank and the IMF on a soon-to-be-published consultation document on digital currencies.

As part of a bilateral trade deal, India and the United Arab Emirates also agreed to work together on cutting-edge technologies like blockchain.

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