NEW DELHI: Banking major HSBC on Sunday announced India’s first trade finance transaction through blockchain, with the bank executing one for an export from Reliance Industries (RIL) to one of its American clients.
According to a statement from HSBC and RIL, the blockchain-enabled letter of credit (LC) transaction facilitated a shipment between Reliance and the US-based Tricon Energy, massively reducing the time taken for processing the documents.
“The use of blockchain offers significant potential to reduce the timelines involved in exchange of export documentation from the extant seven-ten days to less than a day,” RIL joint chief financial officer Srikanth Venkatachari pointed out. The two companies also say that the solution is a significant improvement for any organisation involved in buying and selling goods internationally, as it brings together all parties onto one platform. Blockchain technology works on the basis of a distributed database, and is deemed one of the most transparent transaction systems currently.
Many domestic lenders, including ICICI Bank, SBI and Yes Bank, are working on blockchain solutions and count trade finance as one of the best use cases for the technology because of the ability to cut down on time.
For this transaction, the blockchain platform was integrated with the electronic bill of lading (eBL) platform to issue and manage an electronic bill of lading, allowing a digital transfer of the title of goods from the seller to the buyer in the underlying trade.
HSBC’s head of global banking and markets Hitendra Dave stated that the technology is having a transformative impact on trade finance transactions, enabling greater transparency and enhanced security in addition to making it simpler and faster. “The overall efficiency it brings to trade finance ensures cost effectiveness, quicker turnaround and potentially unlocks liquidity for businesses,” he added.
Under the current conventional system, buyers and sellers use paper-based LCs to underpin transactions and physical documents are sent to each party in the transaction by post, courier or fax. While the current system provides a high level of certainty, the time and cost involved in processing the documents are deterrents for exporters.
For the transaction in question between Reliance and Tricon, the LC was issued by ING Bank, Brussels for Tricon Energy US, with HSBC India as the advising and negotiating bank for Reliance.The players involved see the successful execution validating the commercial and operational viability of blockchain as an alternative to conventional exchanges for paper-based documentation.