This project plans to weed out fraudulent fugitive loaners like Nirav Modi and Mehul Choksi, who have siphoned off thousands of rupees.
It is also paired up with IBM, SettleMint, and Corda Technologies, which will provide the project's technological support.
This project will be the ‘Proof of Concept’ to set industry standards for upcoming blockchain Technologies to help with peer-to-peer access, which will help with tracing the flow of money to help with tracing any future illegal money lending.
The Coming together of Banks:
Major lending banks such as the State bank of India, Kotak Mahindra Bank, IDFC bank, etc., will be part of this project by the RBI and have been stated to have invested a total of INR 5 crores.
The inter-organization trade finance process will be digitized and automated by IBBIC using the Infosys Finacle Connect platform on a single distributed, trusted, and shared network.
With this, the Indian banking sector, which has historically been hampered by antiquated technology and paper-based procedures, makes a significant advancement in the digitalization of trade financing.
The decision was made at a time when blockchain technology prototypes are swiftly moving from the experimentation stage to deployment, and the government of India is getting ready to implement rules for cryptocurrencies and blockchains.
Many scammers use Letters of Credit (LC) to ensure that they can keep on lending money from the bank even if they do not have enough capital or collateral to pay back the loans, which causes major problems for the bank lending them the money as well as the public who have accounts in the banks.
With this blockchain technology, it will become easier for the RBI to verify the lender's authenticity and prevent any fraudulent lending by the bank.
Issuing digital LCs provided from the blockchain platform will help trace the owner’s authenticity and see where the cash flow is heading.
What this means for the future:
With this technology at hand, it will become easier for the RBI to crack down on fake money lenders and provide a much safer platform where businesses can procure funds for themselves.
Though the RBI has yet to produce any official statements regarding its project, it is clear that this may be a good step for legitimizing banking and preventing fraud and scams.