MUMBAI: India’s successful private bank, Kotak Mahindra (Kotak), with the help of Blockchain technology, has ushered in a new era in trade & commerce by reducing time taken for a Letter of Credit (LC) from 20-30 days to only couple of hours.
Kotak says that it is the first bank in India to successfully complete the PoC (proof of concept) for end-to-end trade finance transaction for one of its clients, and will soon roll out this technology for all customers.
LC is a negotiable instrument and a critical document in both domestic and international trade finance, and is also one of the most tedious documents to process in banking.
The time involved in completing the process deprives exporters from utilizing their sale proceeds efficiently. The verifying, approving and documenting process takes time given that multiple parties from different countries with varied regulatory frameworks are involved in the process. Blockchain technology not only eliminates duplicity of data but also integrates data to a central cloud-based access system for participants in a transaction.
In a first of its kind transaction in India, Kotak partnered with Deloitte and used the blockchain technology to complete LC transactions with JP Morgan Singapore as Partner bank (Outbound – LC issuance; Inbound – document & bill lodgement) – from issuing the LC for outbound transactions to transferring trade documentation and bill lodgement for inbound LCs to facilitating the transaction funds using Swift.
KVS Manian President – Corporate, Institutional & Investment Banking, Kotak Mahindra Bank said, “In an ever-evolving digital ecosystem, while instant money transfers have progressed significantly, trade finance in India has a lot of catching up to do. Blockchain, the “distributed ledger” technology has emerged as an object of intense interest in the financial services industry and beyond. Since 2008, the Blockchain technology has evolved from a way of recording transactions to a digital revolution that has the potential to be highly secure, transparent, resistant to outages, auditable, and efficient.”