SBI, HDFC, ICICI and 12 others banks are joining forces to use blockchain to power Letters of Credit — a move that could be a boon for MSMEs

• Some of the biggest banks in India are joining hands to create a new company that will leverage the power of blockchain technology to speed up the processing of Letters of Credit (LCs).
• Indian Banks' Blockchain Infrastructure Company Private Limited (IBBIC) is a coalition of 15 banks, including ICICI Bank, HDFC Bank, RBL Bank, SBI and Canara Bank.
• The system will be based on Infosys’ Finacle Connect, a blockchain-based platform that enables digitisation and automation of trade-related finance processes.

Banks in India are coming together to use blockchain technology to solve a central problem in traditional banking — the processing of Letters of Credit (LCs), GST invoices, and e-way bills.

India’s largest public sector bank, the State Bank of India (SBI), along with ICICI Bank, Kotak Mahindra, Axis Bank, and 11 others have formed a new company called the Indian Banks’ Blockchain Infrastructure Company Private Limited (IBBIC) that will be at the helm of this transformation.

The move is expected to eliminate paperwork, reduce transaction processing time, and offer a secure environment. Moreover, it could be a boon for medium and small-scale enterprises (MSMEs).

For those who aren’t familiar with LCs, these are letters from a bank that guarantee that a buyer will pay the seller on time, and for the correct amount. Currently, the process of issuing an LC is relatively slow and requires human intervention to prevent frauds, authenticate transactions, and balance the ledger.

Using blockchain to issue LCs would potentially solve these issues. Even elemental fraud like the issuance of two LCs on a single invoice can be easily prevented with the help of this blockchain technology.


The new system is expected to go live within a year and each bank has an equal stakeholdership of 6.66%. It’ll be designed to be open, making it seamless for other banks to join anytime in the future.

What do MSMEs have to gain from this?

The technology is purely based on the concept of tokenisation. This helps turn sensitive data into nonsensitive data that can be leveraged by multiple parties in a series. It also helps preserve the authenticity of data and indirectly enables digitisation.

Simply put, a basic invoice can be turned into a token, which can then be used to settle payments, overheads, and other adjustments.

For medium and small scale enterprises (MSMEs), this could be a game-changing innovation.

Through all of its transactions, assets, liabilities, and more, tokenisation would make approvals quick, disbursements and settlements would be instantaneous, and the chances of fraud are minimised.

The incorporation of IBBIC is starkly similar to that of the National Payments Corporation of India (NPCI), which is an umbrella organization that handles critical real-time products like RuPay, UPI, and FASTag.

It was formed in 2008 and initially had just 10 banks as stakeholders. The cooperative model has been widely acclaimed as banks kept aside their individual ambitions and collaborated at an unprecedented scale.

With the adoption of blockchain, banks are again presenting a unified front. And, as the industry benefits, each bank will have something to gain as well. If they try to undermine each other, nobody wins.

Cryptocurrencies, which are based on this technology, have grown exponentially in the last year. However, conventional financial intuitions are yet to take advantage of it. While the authorities figure out a way to regulate cryptocurrencies, banks are taking a step forward and bridging the gap from a technology point of view.

Who are the stakeholders?

Out of the 15 banks, eleven are privately held by investors while four are public sector units.

The private banks include HDFC Bank, ICICI Bank, Kotak Mahindra Bank, Axis Bank, IndusInd Bank, Yes Bank, RBL Bank, IDFC Bank, South Indian Bank, and Federal Bank. And, the public sector units encompass Bank of Baroda, SBI, Canara Bank, and Indian Bank.

American lender Standard Chartered is the only international player in the consortium.

The system will be based on Infosys’ Finacle Connect, a blockchain-based platform that enables digitisation and automation of trade-related finance processes.

The technology has already been deployed or piloted by the likes of SBI and Axis Bank at an individual scale, but an industry-wide alliance is a first.

Letters of Credit are only the beginning

Domestic LCs are just the tip of the iceberg. The industry has been exploring more complex use-cases such as collateralised loan disbursal, deeper credit rating, and even transaction traceability.

Tokenisation of assets like stocks, bonds, registration certificates, and more can make them instantly available as collateral, making deals far safer for lenders.

At the same time, smart contracts ensure frauds are minimal. While these case studies are still in a nascent form, the future looks promising as the traditional institutions converge with millennial engineers and the cutting-edge of technology.


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