Page 40 - Banking Finance February 2025

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other financial institutes. As information inflow is very high, intermediaries, can be simplified and made more
the process takes a considerable time to complete. This transparent through smart contracts. By automating the
process majorly includes steps like photo verification, address execution and settlement of derivative transactions based
proof checks and biometric verification. Verification of these on predefined conditions, smart contracts can mitigate
steps requires huge involvement of Bank staff and costing counterparty risk and ensure timely and accurate
of the process is also very high. Blockchain on the other hand settlements.
eases this process by providing shared and immutable
customer identity database. In this way Banks can easily Overall, the adoption of smart contracts in banking offers
verify Customer KYC and transaction history on real time significant opportunities in enhancing operational efficiency,
with chances of fraud being the minimal. minimizing expenses, and improving the end-to-end
customer journey. However, it's essential to address
Smart Contracts challenges such as legal and regulatory considerations,
Smart contracts are indeed revolutionizing various industries interoperability with existing systems, and potential security
by automating and enforcing contract terms on blockchain vulnerabilities to realize the full potential of this technology.
networks. This innovation brings several advantages,
including increased efficiency, transparency, and security in Regulatory Compliance
executing agreements. By removing intermediaries and
As the data in blocks are susceptible to change or immutable
leveraging decentralized ledger technology, smart contracts in nature, it enhances regulatory reporting and compliance
streamline processes and reduce the potential for errors or
fraud. as transaction and regulatory data remains tamperproof.
Using blockchain, banks can be assured of data integrity
along with the automated collection, transparency, and
In banking, smart contracts have immense potential to
transform traditional practices. For instance, loan timely reporting of data to the regulators.
agreements can be executed more efficiently, with terms
automatically enforced upon fulfilment of conditions such as Present usage of Blockchain in Indian
repayment schedules or collateral requirements. Similarly, Financial Market
insurance claims processing can be expedited, with payouts
Blockchain technology is in its nascent stage in India, but its
triggered automatically when predefined conditions are
popularity is increasing day by day. In 2021, the State Bank
met, thus enhancing customer satisfaction, and reducing
of India (SBI) partnered with JPMorgan to utilize the US
administrative overhead. Moreover, derivative contracts,
which typically involve complex agreements and multiple bank's blockchain technology to expedite overseas
transactions. This collaboration was expected to decrease
transaction costs for SBI customers and reduce the time
taken for payments.

Few Private banks such as Axis Bank, IndusInd Bank, ICICI
Bank, Yes bank & HDFC Bank will participate to test
blockchain-based settlement system with JP Morgan.

Fifteen banks in India have came together to constitute
Indian Banks' Blockchain Infrastructure Co Pvt Ltd (IBBIC),
which will be using blockchain technology for processing of
Inland Letter of Credit (LCs). These Banks include four public
sector banks, ten private sector banks and a foreign bank.
Largest banks of India like State Bank of India, ICICI Bank,
Axis Bank, HDFC Banks are few of the participants.

Government of India is also understanding the importance

36 | 2025 | FEBRUARY | BANKING FINANCE