Blockchain Technology in the Indian Banking system- Complete Analysis

Friday August 17, 2018

Blockchain ’s key properties of decentralization, immutability, efficiency, cost-effectiveness,and security not only disrupting the entire spectrum of financial services but also changing the landscape of the global banking system. According to the research and statistics by the Blockchain-works, it is found that some leading banks in the world like Royal Bank of Canada, R3, Barclays, HSBC, and JPMorgan are using the Blockchain technology to improve the speed of the payment and security and to reduce the complexity in the system. The aim of this post is in-depth analysis of the Blockchain technology in Indian Banking sector.


It was the year 1988 when Reserve Bank of India set up a committee for the computerization of the bank under the headship of Dr. C. Rangarajan. This was the beginning of a new banking era in the country, the motive behind this was to elevate and empower the Indian banking system. With the standalone PC followed by the local area network,this was a promising step toward the global banking.

The year 1991 was a revolutionary year for the Indian banks when private and foreign banks came in the country, due to which our banking system became more competitive and advanced.   Banks benefited with the respect to time and cost by adopting technologies like e-banking, MICR based cheque processing, electronic fund transfer inter-connectivity among the bank Branches and implementation of ATM.

Later in March 2004, RBI introduced Real Time Gross Settlement (RTGS) to develop an efficient and stable payment system infrastructure in the country. And in November 2005, RBI introduced National Electronic Funds Transfer (NEFT) for quick fund transfer, which enables people to transfer funds from any bank branch to any individual, firm or corporate having an account with any other branch in the country. Now Online Banking, Mobile banking, Debit cards, Credit Cards, Prepaid cards, etc. making our banking system robust, flexible and scalable.

The launch of United Payments Interface (UPI) and Bharat Interface for Money (BHIM) by the National Payments Corporation of India (NPCI) are the significant steps toward a cashless economy. Arguably, in the past three decades, the achievement of Indian bank was unprecedented. Today, the bank’s aim is to provide quick, transparent and flawless services to their customers. The state-of-the-art technology like Blockchain, automation, and the artificial intelligence will elevate the banking system to the next level.


Blockchain Technology in Banking System- A Beginning of New Era

Why do banks need Blockchain?

Definitely, now our banking system is more advanced than before but still, there are some loopholes in the banking system like delay in the payment system, lack of speed and transparency.

Delay in the payment system:

Delay in the payment system is one of the major drawbacks in our banking system. According to estimates, the delay in the settlement is costing the banking industry between $60 to $80 billion every year.

Speed/ efficiency:

Speed is the second major issue, which banks are looking to resolve. Literally, when it comes to an international transaction, the process takes at least three days, even sometimes it takes a week.  The Blockchain technology will record all the transaction in a distributed manner and discrepancies can be seen and fixed in real-time, saving everyone time and money.


The present banking system is not transparent, in this system bank controls your entire amount and you have no idea that what exactly is happening with your money, in this scenario chance of scam or fraud arise. Recent INR 9.4 billion PNB scam is a good example of this. Blockchain technology ensures transparency in the system, due to the decentralized ledger you can see that what exactly is happening with your money. Once the transaction is recorded in the system no one can alter it.

The difference between traditional bank transfer and Blockchain based fund transfer:

Traditional bank wire delivery process:

  • Senders make a wire transfer
  • Transfer goes through the local bank
  • Transfer approved and sent to the corresponding bank
  • Funds received
  • Wire transfer information checked
  • The recipient gets funds.
  • The process does take three days.

Blockchain-based transfer:

  • The sender enters recipient’s wallet address and amounts to be transfer
  • Transaction submitted to the Blockchain
  • Transaction confirmed within the Blockchain
  • Recipient gets funds
  • The process does not take more than five seconds.

Here notable thing is that there is no involvement of the third party in the Blockchain based money transfer and transaction cost is also very low.

What is the Blockchain Technology?

Based on the Cryptographic technique, Blockchain is the distributed ledger which maintains the database between various participants without the requirement of any third party or central authority. It is a secured database wherein transaction are verified by the participants who are involve in the transaction. Each group of the transaction is known as “Block”, block records all the transaction which goes into a blockchain as a permanent record once completed.

The benefits of the Blockchain Technology

Reduce transactional cost:

  • Save the reconciliation cost of bank
  • Due to this technology, payment and settlement take place simultaneously which leads to a reduced cost in the management of funds by the treasury.


  • Blockchain boosts the transaction speed and also reduce the time of decision making across the organization with minimal human intervention.
  • It reduces the requirement of duplicate record keeping, reduces reconciliations, minimizes errors and frauds leading to faster payment and settlement.
Eliminate the third party

Blockchain technology eliminates the third party, thereby money direct goes to an individual’s bank account without any third party.  It reduces the overhead cost when parties transact directly with each other without the need of central authority.


Banks and Cryptocurrencies in Europe



Interoperability is the main issue in the system;literally, the existing technology in the system is not sufficient enough to adopt this technology. A greater interoperability now needs of the system to make the Blockchain compatible with the wider web and to integrate them into existing practices and processes.


Since Blockchain is the distribute ledger so the data inherently goes public among all participants in the system. So this is athreat with respect to transaction privacy as the data made public and anybody can see it.  Definitely, private Blockchain is more secure, but it faces interoperability issues with other blockchains.


Encryption is a major issue here, because in some cases if the key is made public then anyone can access the encrypted data and if someone lost the key to unlock the Blockchain then it is impossible to get back.


As the Blockchain applications are increasing likewise there is the need of a large database, here speed and accuracy of the Blockchain application will also important to make it commercially viable.  The processing speed of the Blockchain application should high to handle a huge amount of data.

Legal framework:

Blockchain technology is still new so many countries don’t have a proper legal policy for this technology. Besides, various government across the globe indulging in research to explore the potential of this technology.However, still more clarity is required on the legal aspects of blockchain technology.

Global scenario:

  • The US Department of Homeland security using Blockchain technology for data security.
  • China is the first country in the world, is using the Blockchain technology to facilitate taxation.
  • The government of Georgia using Blockchain technology for land registration.
  • Switzerland is using the blockchain technology for resident’s ID and online voting.
  • Estonia is the first digital country in the world, using Blockchain technology in every major sector.
  • Healthcare project ModRec is using Blockchain technology to facilitate data sharing while providing authentication and maintaining confidentiality.
  • In March 2017, IBM launched the Hyperledger Fabric blockchainin conjunction with Energy-Blockchain Labs to track carbon asset in China.
  • Six of the world’s premier lenders—Barclays, Credit Suisse, Canadian Imperial Bank of Commerce, HSBC, MUFG are using Blockchain technology to create a utility settlement coin, a digital currency that will primarily be used to quickly clear and settle financial transactions.
  • Seven of Europe’s biggest banks—Deutsche Bank, HSBC, KBC, Natixis, Rabobank, SociétéGénérale and UniCredit—have hired tech giant IBM to build a blockchain platform to facilitate cross-border trade finance for small businesses.
  • IBM and Walmart have teamed up to launch the Blockchain Food Safety Alliance in China. The project, run in conjunction with Fortune 500 company, is designed to improve food tracking and safety, making it easier to verify that food is safe to consume.

So you can see that, Blockchain technology is not limited to banking sector rather various industries are exploring the potential of this technology.  Now when India is on the brink of an economic superpower, in this scenario Blockchain technology in the banking sector can play a significant role to boost the Indian economy. So it is a right time to implement the Blockchain technology in the banking sector.