Block Chain Linked Funding

BE/RBI NOTE/04/2019

ICICI Bank, Kotak Bank, HDFC Bank, and Axis are one of the 11 Banks, who would be part of the consortium of 11 big lenders who are now ready to launch the first block chain linked funding for Small and Medium Enterprises (SMEs).  This is expected to change the system of lending to small firms which are subjected to default.

At present, YES Bank, Standard Chartered Bank, RBL Bank, and South Indian Bank are part of the consortium. In the capacity of outside members, IndusInd Bank,  State Bank of India and Bank of Baroda are now participating in the process.

1. Such type of organization is expected to remove communication difficulty among various banks.
2. It is essential for the entire ecosystem to work in synergy through a single network for the success of the blockchain network.
3. The consortium named Blockchain Infrastructure Company arranges the meeting of the consortium members.
4. Members of the meeting are discussing about setting up a network which would decide on reducing the timeframe in supply chain financing
5. The main purpose of having such a network would be to bring in more transparency in credit disbursement more so in the areas which are under banked.
6. The network would provide the following to the lenders:
   1. Their much-needed access to the public credit data.
   2. Helping them make their lending more judicious
   3. Reducing the risk involved.
   4. Remove information hierarchy between large corporates and SME lenders in terms of availing credit from banks.
7. The ticket size for MSME (Micro, Small and Medium Enterprise) sector is generally 10 lacs to 1 crore.
8. RBI information reveals that in the first phase banks will set up a live network for supply of chain-vendors from across the country to register themselves and digitize their records.

Note:

Latest Central Bank data reveals that outstanding credit of all commercial banks with MSME sector as a percentage of total outstanding corporate credit with banks is just 17.3%.