The issue of processing the Letters of Credit, or otherwise known as LC, is one of the traditional problems in the banking sector in the company, especially the banks who perform traditional banking.
The LCs are the letters from the bank that assure and guarantee the sellers that the buyer will pay them on time, with the correct amount of money.
The current situation and the process of issuing an LC is relatively very slow. It requires human intervention to prevent frauds, authenticate transactions, and balance the ledger, which has to be done manually.
For the exact same reason to make the process of issuing an LC faster and easier, several banks in India are coming together to make use of the Blockchain technology. The new technology will solve the problems of the traditional banking, which involves processing of Letters of Credit, GST invoices, and e-way bills.
Making use of the new blockchain technology for issuing LCs would potentially solve all the issues the central issues faced by the banks in their system. It will also solve elemental fraud and other issues like issuing two LCs on a single invoice.
A total of 15 banks have agreed to make use of the blockchain technology to overcome these central problems in the banking system.
The State Bank Of India (SBI), which is perhaps the largest public sector bank in the country, along with other banks like HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank, RBL Bank, along with 9 other banks in the country are forming a new company which will go by the name of Indian Banks’ Blockchain Infrastructure Company Private Limited (IBBIC), that will help a great deal in handling the transactions like LC issuing and making GST invoices, etc.
The bringing of the new technology in the country will supposedly eliminate most of the paperwork. It will also reduce the time taken for the transactions and the time taken by it for its processing. This will not only secure the transacting environment but can also be a big boon for the medium and small-scale enterprises (MSMEs) in the country.
Varun Bakshi, Head of Products and Transaction Banking at the RBL Bank, in one of his statements said- “Disbursements on domestic LCs, which used to take four to five days, can be done in four hours.”
This new system of blockchain will expectedly go live within almost a year. Each bank on the list will have an equal share of stakeholdership, of an exact of 6.66%. The stake holder deal will make it seamless for any other bank to join the deal any time in the near future.