Collaboration using blockchain technology is key to solving a lot of systemic issues in banking sector says IBM's Jitan Chandanani

In the first phase of this network, the banks set up a live network for supply-chain vendors across India to register themselves

We have been hearing about the benefits of blockchain technology for the last few years. Even at the central government level, blockchain has got a vote of confidence.

But when it comes to actual blockchain-technology based implementations in the public sector, we more often than not, tend to draw a blank.

As of November 2019, we are still in the process of coming up with a strategy for national-level use of blockchain technology. Andhra Pradesh is one of the few states that is using a blockchain-backed land registration process.

One of the tech innovations that really put blockchain on the map for most of us, is cryptocurrency. Given the reservations against crypto-assets, cryptocurrency never got a chance to take off in India. However, the underlying blockchain technology is something that has piqued the interest of many banks in India. With global consultancy firm, PwC betting on India becoming a leader in blockchain tech with the right amount of government participation, banks don't seem to want to be left behind.

(Also read: Understanding blockchain technology and its implications on the future of transactions)

Eleven of India's largest banks including HDFC Bank, ICICI Bank, Yes Bank, Axis Bank, Kotak Mahindra Bank, Standard Chartered Bank, RBL Bank and South Indian Bank, have launched a first of its kind blockchain-linked loan system in India for small and medium enterprises. State Bank of India, Bank of Baroda and IndusInd Bank are involved in this consortium as outside members. In the first phase of this network, the banks set up a live network for supply-chain vendors across India to register themselves and digitally record all their transactions.

The blockchain system which the 11 banks above are running is managed by IBM. We spoke to IBM's Blockchain leader for India and South Asia, Jitan Chandanani, who is responsible for helping clients enable the capability and strengths of blockchain in their current environment to drive business growth and future opportunities. IBM was recently associated with developing the world's largest telecom blockchain in India to manage unwanted calls and unsolicited commercial communications.

Edited excerpts from the interaction follow.

Jitan Chandanani, IBM Blockchain Offerings and Engagement Leader, IBM India / South Asia. Image: IBM

Jitan Chandanani, IBM Blockchain Offerings and Engagement Leader, IBM India / South Asia. Image: IBM

tech2: IBM is working with 11 of India's banks to develop a blockchain-linked loan system. Could you tell me how this works? 

Jitan Chandanani (JC): Each of these banks was already working on some sort of blockchain solution for their own use. But instead of working in silos when it came to applications which involved banks working together, such as loans or trade finance, it was decided that there needs to be a consortium with a common blockchain solution. We identified 11 banks who agreed to identify a systematic issue and build a solution. We digitised the entire process and then approached the regulator with this solution. As long as the control and governance requirements of the regulator are met, we started testing the use cases involving these banks.

The details of the use case and its implications are the intellectual property of the banks. I am not at the liberty to share information on it. However, the initiative by itself is a marquee initiative and it is very encouraging to see the banks coming together to reshape the architecture of India’s banking system. The banks also realise that certain systemic problems may be better solved by collaboration than by mere siloed solutions.

tech2: Also, how does this work under RBI regulations? What are the kind of regulatory challenges when it comes to implementing something like this?

JC: RBI has taken an active step in laying clear guidelines in what will not be permitted and the economic reasons behind the same. At the same time, they have been quite encouraging in taking regular meetings with banks, IT firms, startups and provide guidance in what could be permissible. They have also gone ahead and established a sandbox for service providers and banks to run test pilots. At this stage, I think this is the best that can be expected. The regulator is open to the ideas of BFSI companies running pilots and presenting them with the study to enable them to build regulations. I believe that is a logical way to build regulations.

tech2: India's banking sector recently moved on to core-banking solutions. Don't you think involving blockchain in this sector is too early for its time? How do you plan to train the staff working on these systems?

JC: The blockchain adoption has just started while core banking solutions have been serving banks now for over two decades. They are focused primarily on meeting the technology requirements inside the bank and not necessarily the bank’s clients and ecosystem. The ideal blockchain solution needs to cater to an ecosystem — that means it should serve as a ledger for the bank, the supplier, the manufacturer, the logistics firm, the warehouse firm and all other participants in a supply chain ecosystem. None of those participants other than the bank, need or have a core banking system. Blockchain aims to solve a trust and transparency problem across the ecosystem — which a centralised, single owned system cannot provide.

I do not believe that it is too early for its time – the adoption of technology is based on how efficiently one can solve a problem and the ease of use of the solution. If those two aspects are kept in focus during solution design, adoption can be expedited with appropriate education and knowledge sharing.

tech2: In India, we keep hearing from the government that they are keen to pilot and eventually implement blockchain across multiple sectors. What according to you are the challenges facing the implementation of the technology in public sectors at the moment?

JC: Education and awareness. Cryptocurrencies are the best and worst thing that happened for blockchain. While it made blockchain a business term, it also aligned the use of blockchain solely with cryptocurrencies. The delays in adoption require organisations like IBM to educate and debunk the myth that you need a cryptocurrency to run a blockchain public sector initiative.

Secondly, the approach should focus on the problem and not the solution. This requires multiple organisations with contrasting priorities to come together and form a symbiotic solution. The due diligence on the use case is more important than the technology development – if done incorrectly or using poor data the project can unravel pretty quickly.

tech2: Considering IBM Blockchain is what one would call a Permissioned Blockchain, would IBM only be working with private industries and clients or are you open to working on government projects as well?

JC: Permissioned Blockchain does not indicate that only private players can be involved. A permissioned blockchain signifies the existence of a governance mechanism that enables ecosystem players to conduct transactions that meet the required business criteria. This governance role can be played either by business entities or government entities. IBM is already working with several state and central governments to establish public service utilities in areas of land registrations, ID management and microfinance.

tech2: One of the IBM Blockchain principles states: Permissioned doesn’t mean private. Could you elaborate on that?

JC: To support an enterprise-grade platform aligned with the regulatory and fiduciary responsibilities of its participants, enterprise blockchains must be designed around the principle of permissioned and trusted access. Though anonymous public blockchains afford a number of powerful capabilities, they are not suitable for most enterprises, particularly those in regulated industries. Most organisations need to know who they’re conducting business with and that no illegal activity is being transacted over the network. However, this is not to say that enterprise blockchains must be private; instead, they should be permissioned. They may be open to anyone willing to register and cryptographically validate their identity. Common identity standards can help streamline access across multiple blockchain networks using the same set of verified credentials.

Example: Sovrin, a digital identity management network and Stellar, a decentralised global payment platform, are examples of public, yet permissioned blockchain networks. TradeLens, a supply chain management platform built atop Hyperledger Fabric, is another example of a permissioned blockchain that grants participants visibility into who their network peers are.


tech2: Apart from Banking, which other sectors is IBM implementing blockchain technology in India? 

JC: In telecom industry with the Do Not Disturb platform to save you from pesky marketing calls. Supply Chain Transparency, Agriculture transparency are other areas where IBM Blockchain is used.

tech2: Could you tell me, in brief, the different areas or verticals that are using IBM Blockchain globally

JC: Financial Services – Trade Finance – We.Trade
Financial Services – Bank Guarantees – ANZ, Commonwealth Bank and Westpac
Financial Services – Supply Chain Financing, Dealer Financing – Mahindra, IPDC, Union Bank Philippines
Telecom – DND Regulation – India Telecom players
Food Manufacturing and packaging companies – Traceability and Provenance – Food Trust
International Trade and Logistics – Documentation and Container Management - Tradelens
KYC and Identity Management – Secure Key, Sovereign Identity Project

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