Banks link up on BankChain to exploit blockchain solutions

Mumbai: For over a month, representatives of most major banks in India have been participating in so-called online Blockathons every Thursday. The reason: explore, build and implement blockchain solutions.

During these blockathons, each participating bank is given a cloud-based node on a private blockchain. Each session deals with a specific topic. For instance, while the 7 June blockathon addressed the issue of how blockchain could be used to reduce non-performing and other stressed assets, the participants will dig deeper into this topic on 14 June.

BankChain is an alliance of banks formed in February 2017 to explore and build blockchain-based solutions. The BankChain community has 37 members, with representations from 28 Indian banks, including State Bank of India, ICICI Bank Ltd, Kotak Mahindra Bank Ltd, HDFC Bank Ltd and Yes Bank Ltd.

While Indian banks pay Rs6 lakh as annual membership fees, foreign banks contribute $24,000 each. The members get access to the node and source code for all BankChain projects, besides training material and access to a dedicated private test blockchain, according to Sudin Baraokar, chief mentor of the BankChain alliance.

Baraokar was earlier head of innovation at SBI, the first Indian bank to roll out blockchain-enabled smart contracts and know-your-customer (KYC) solutions.

Over the last 16 months, the BankChain alliance has helped banks address several issues such as setting up an integrated corporate e-KYC platform, a vendor rating system and a blockchain-powered register, which records hypothecation, lien, mortgages and pledges on movable, immovable and intangible assets.

The BankChain alliance is also working on helping banks share their private blockchain solutions with their counterparts. A bank that has disbursed a loan to a big company, for instance, has already done due diligence on a set of documents before it took the decision. If the same company approaches another lender for a loan, why should this bank reinvent the wheel by asking for the same set of documents?

“This bank could simply purchase those loan documents instantly from the first bank if the papers are part of a blockchain. By providing the same set of loan documents to other banks on a shared permissioned blockchain, banks could also make money from each transaction,” explains Rohas Nagpal, chief blockchain architect of Primechain Technologies, the Pune-based startup that operates BankChain.

The BankChain alliance, according to Nagpal, is currently working on 10 live projects, including cross-border remittances, corporate KYC and charge registry, besides bank guarantees and employee background verification.

For instance, Primechain-KYC records are stored in a permissioned blockchain in an encrypted form and can only be viewed by banks that have been “whitelisted” by the issuer bank, which ensures data privacy and confidentiality. In a permission-less (public) blockchain like bitcoin, anyone can set up a node and join the network. On the other hand, a permissioned blockchain (like Ripple) could also be described as a private blockchain or privately distributed ledger.

The country’s apex banking regulator appears to be favouring the use of blockchain in specific cases. In a November 2017 white paper, the Institute for Development and Research in Banking Technology, which was established by the Reserve Bank of India to focus on banking technology, suggested that banks could set up a “private blockchain for their internal purposes”.

The paper pointed out, among other things, that “...besides eliminating the need for moving papers across countries, the (blockchain) transaction eliminates the need for financial messaging between banks and introduces the convenience of instant cross-border remittances for retail customers”.