The Impact Of Blockchain Technology
On Indian Financial Sector
Guide Ms. Vandana Kedia
Professor, Department of Accountancy
Annasaheb Vartak College of Arts,
Kedarnath Malhotra College of Commerce,
E.S Andrades College of Science.
Author
Ms. Priya Shyam Lagade
Roll No: 20 Student, M.com Part II (Sem 4)
Subject: Financial Planning
Annasaheb Vartak College of Arts,
Kedarnath Malhotra College of Commerce,
E.S Andrades College of Science.
ABSTRACT
Technological innovations witnessed by the financial sector during the recent past have changed the
way business needs to be conducted. IT has introduced new business paradigms and is increasingly
playing a significant role in improving the services in the financial sector. One such technological
change is the blockchain technology which is though in the initial stage of implementation, yet is
gaining lot of popularity. Technology is changing time and again and the reason for this technology to
emerge is to overcome the problems that have been encountered by the existing technologies. In this
article a case study has been used to conduct the research and understand what the future of blockchain
technology can be in India. The paper aims to explore and understand how the implementation of
blockchain technology in the financial industry will bring in a change in the financial sector.
A blockchain is a digitized, decentralized, public ledger of all cryotocyrrency transactions. Constantly
growing as ‘completed’ blocks (the most recent transactions) are recorded and added to it in
chronological order; it allows market participants to keep track of digital currency transactions without
central recordkeeping. Each node (a computer connected to the network) gets a copy of the blockchain,
which is downloaded automatically. It is more cost effective, efficient and faster than the existing
technologies being used. In india ICICI Bank is the first bank to use this particular technology. In this
article few examples from other countries using blockchan in used apart from India’s ICICI Bank. The
conculsion suggests that it will take around 5 years for blockchain technology to completely replace
the existing technologies in financial sectors.
KEYWORDS: BLOCK CHAIN TECHNOLOGY, DIGITAL LEDGER, FINANCE
SECTOR, BANKING.
INTRODUCTION
In Indian financial system there is wide scope of automation since the legendary act of demonetization
by our Prime Minister Shri. Narendra Modi. One of the reasons for not saving the money in banks or
investing in other financial institutions is the trust factor of people on the technology being
implemented in them. This problem can be overcome if blockchain technology is being implemented.
The reason is that blockchain technology eliminates the intermediaries and makes the transaction
process more transparent, simple and also quick. The unnecessary intermediaries in the transaction
process not only make the process complex but also contribute towards increasing the cycle time and
cost. All this problems can be overcome with the introduction of blockchain technology.
During the first 40 years of its existence, the Internet has brought us many positive things. Step by
step, it has allowed using: e-mail, the Worldwide Web, various social media platforms, big data,
mobile applications, cloud computing, and the Internet of Things. It seems that technological evolution
is spectacular. The above listed innovations have shaken the methods of work and consumption
(improving trade, culture, changing the company's management and administration, stimulating
exchanges, etc.). Despite all its positive influences, the recent technical progress has socially and
politically negative effects. For example, the Internet ishas only deepened the problems of privacy,
security, and inclusion. Today many intermediary (often suspicious) parties collect our most sensitive
data (which can be both business and private) and thus invade our privacy so that to profit for
themselves. Many attempts were undertaken to overcome this limitations. Many attempts were
undertaken to overcome this limitations. This article extends on the analysis of capacities for changing
the financial sector, and other industries. The aim is to contribute solving still unsolved problem:
weather blockchain is the only promising technology or technology which will transform business
deeply?
FUTURISTIC ALTERNATIVE- BLOCK CHAIN TECHNOLOGY
Block chain technology is an end to end software technology that protects the integrity of a digital
piece of information using different forms of math and algorithm. It can also be defined as a shared
ledger which gives access to any individual in the business network. In this system, the facts can be
verified with great ease and the records stay confidential. In blockchain technology there is no human
intervention to verify a particular transaction. There are only nodes, i.e. computers and an open
algorithm. It is also believed that in the near future blockchain technology will replace the existing
method of transactionsavailable in the Indian banking and financial sector due to the reduction in cost
and the increase in efficiency that can be brought about by it.
CAPABILITIES OF BLOCKCHAIN TECHNOLOGY
Blockchain technology has the potential to bring about a huge change in much business process
specially the financial sector. The
traditional method of recording the transaction and processing it will now be completely replaced by
directly processing the transaction without human intervention. A concern that arises is that this
technology may reduce the employment opportunities available, leading to bigger economical
problems. This concern is however ignored as the positive side to the implementation higher than the
negatives.
APPLICATION OF BLOCKCHAIN TECHNOLOGY
Blockchain technology is an effective replacement framework for several revenue generating business
processes such as trade financing, vendor financing, cross border payments, adhering to KYC norms
and organisation of syndicated loans. The concept of smart contract execution is instrumental towards
conducting this business process using Blockchain Technology. Blockchain technology is critical to
certain success factor which can help the banks and financial institutions adopting this technology, to
become the preferred financial institutions for the next generation.
LITERATURE REVIEW
Guy Zyskind, Oz Nathan & Alex Sandy Pentland, Decentralizing Privacy: Using Blockchain to Protect
Personal Data. (2015). This study proposes a decentralized personal data management system that
ensures that users own and control their data. The need for this system arises because of the increasing
volumes of data and increase in incidents of data leaks and security breaches which has resulted in a
breach of user’s privacy. This article is extremely helpful for our project as it shows how blockchain
technology can be used to safeguard data and prevent hacking, phishing or any other form of data
leaks.
Ayushi Gupta, Jyotirmay Patel, Mansi Gupta & Harshit Gupta, Issues and Effectiveness of Blockchain
Technology on Digital Voting. (2017). This study focuses on the impact of using Blockchain
Technology in the voting system in India. The authors recommend a digital voting system that is
powered by Blockchain Technology and digital verification system. This article is used in our research
to find out the possible impact of BlockchainTechnology for voting in Annual General Meetings and
other meetings of a Company
This paper is relevant to our project as it focuses on smart contract execution with the help of
blockchain technology. Jason Killmeyer & Mark White, Will Blockchain transform the public sector?
(2017). This article primarily discusses blockchain as a technology can be used by Government and the
Public Sector to improve its own functioning and bringing about improved efficiency in the
functioning of the public sector. The authors introduce us to the current status of implementation of
Blockchain in the public sector around with major improvements taking place in Europe and United
States of America. This article has given us insight that blockchain technology can make certain
existing processes in the Finance sector such as voting at board meetings and KYC much more
efficient, if implemented effectively.
RESEARCH DESIGN STATEMENT OF THE PROBLEM
The main objective of this research is to understand the impact of implementing blockchain technology
to overcome theseinefficiencies. Many foreign countries like United Kingdom and Australia are in
advanced stage of implementing blockchain technology. However, India is still in the initial stages of
implementation and it has a long way to go.
OBJECTIVE
1. To understand blockchain technology and its relevance in the Finance Industry.
2. To assess the impact of implementation of blockchain the financial sector.
3. To evaluate probable challenges that will be faced while implementing blockchain technology in the
Finance sector.
4. To analyse the prospects of blockchain technology in India.
RESEARCH METHODS AND SOURCES OF DATA
In this project a descriptive and diagnostic method of research is used to analyze the situation in the
financial sector of India and to predict its impact in the future. Case study type descriptive research has
been used here since there is a lack of availability of primary data, cases have been taken into
consideration where blockchan technology is being implemented in foreign countries, the cases have
been studied and the results have been analyzed and the findings have been used to understand how
blockchain technology would have an impact on the Indian financial sector. An analysis of the pilot
transaction between ICICI bank and Emirates NBD, and the R3 Consortium has been done to cover the
banking sector. A study of the Australian Stock Exchange (ASX), NASDAQ, Japan Exchange Group
(JPX), Moscow Exchange (MOEX) and the Korean Exchange has been done in order to understand
how blockchain technology can be used in the capital markets. Bitcoin, Rupee Blockchain, INR Falcon
and Laxmi Coin are the cryptocurrencies covered in this project.
ADVANTAGES OF BLOCKCHAIN TECHNOLOGY
To date, many researchers have proved enormous advantages of technological platform blockchain for
the financial sector, and many industries. S. Underwood (2016, p 15) wrote that “Blockchain
technology is expected to revolutionize the operating modes of commerce, industry, and education, as
well as to promote the rapid development of knowledge-based economy on a global scale. Due to its
immutability, transparency, and trustworthiness for all transactions executed in a blockchain network,
this innovative technology has many potential applications“. Blockchain technology influenced the
transforming the current Internet from “The Internet of Information Sharing” to “The Internet of Value
Exchange.” With new capacity it has become a hot topic for more and more enterprises, institutions,
countries, and researchers. Blockchain simplifies all operations within the banking industry.
First, it automates the process of matching positions against accounts. That means that clearing and
settlement become faster without approval at later stages.
Second, this technology is more transparency and that feature allows blockchain fulfil all regulatory
requirements more efficiently.
Third, since the conditions for every transaction are transparent and fixed, blockchain technology
reduces many risks, that is, they are not changing.
Fourth, it avoids centralisation data with decentralised register stores the full data pertaining to all
transactions as well as the origins of traded assets.
And fifth, blockchain technology eliminates interim steps saving many.
LIMITATION OF THE STUDY
The concept of blockchain technology is completely new, therefore now many people are aware of its
wide scope. This lack of awareness has become a major limitation to the project as it resulted in the
non-availability of primary sources of data. In India specially it is a completely new concept and is just
in the introduction stage. This has led to the difficulty in collecting quantitative data regarding its
effect of implementation in India. The results that were achieved in foreign countries have been used to
estimate the quantitative impact of the implementation of blockchain technology in India.
BLOCKCHAIN TECHNOLOGY AND ITS RELEVANCE IN THE FINANCE INDUSTRY
One of the most prominent reasons for India to still follow the tradition cash transaction method is the
lack of trust on the digital world. The conventional method of transaction is preferred over the digital
transaction. Transactions are nothing but digital entries on a ledger, and since data is relatively easy to
create and modify there is a need for all the parties involved to verify the authenticity of the data that is
being sent and being received. This is done to minimize the risk of wrong transactions.
The term “ledger” has been used above; ledger is nothing but a record of all the data exchanges. Each
exchange of data is called a “transaction”. After the data is verified it is added to the ledger and this
verified data is called a “block”. A distributed system is used to verify each transaction. Once a data is
signed and verified, it is added to the blockchain and this data can never be altered, it remains there
forever. To start with, the concept of “keys” must be understood. These are also known as the
cryptographic keys, that gives us a unique identity. There are two kinds of keys the “private key” and
“public key”. These keys together are used to give a digital signature. Public key is how others are able
to identifythe person and the private key allows one to digitally sign and authorize different actions on
behalf of this digital identity when used with public key.
IMPACT OF IMPLEMENTATION OF BLOCKCHAIN ON BANKS. STOCK MARKET AND
CRYPTOCURRENCY
According to a PwC report, 24% of financial executives from all around the world are very familiar
with blockchain technology, with North Americans significantly more familiar than those from other
regions. Observing the wide-reaching implications of the technology, companies are constantly
researching to find out the ways of applying blockchain in multiple sectors.
Talking specifically about the banking and finance sector, hundreds and thousands of funds are being
regularly transferred from one region of the world to another within each day. This makes the global
financial system one of the most popular sectors that could be
benefited through the application of Blockchain. Operating on the basis of highly dependent manual
networks, the banking and finance sector is prone to errors and frauds that could lead to a crippled
money-management system. According to Global Fintech Report 2017, 77% of Fintech institutes
expect to adopt blockchain as part of an in the production system or process by 2020.
BLOCKCHAIN IN BANKING
Accenture and, McLagan in 2017 published an article stating that about eight of the world’s ten biggest
investment banks have been forecasted to implement blockchain technology in banking. It is estimated
that blockchain will retrench their costs by 30%.
There is strict bureaucracy in competencies in most of the banking setups, and these problems are very
common in the clearing and settlement domains of the banks. These gaps can be filled by use of
blockchain technology.
ICICI BANK AND EMIRATES NBD
ICICI Bank (India) and emirates NBD of Dubai collaborated with edge verve, which is a fully owned
subsidiary of Infosys to pilot a blockchain framework designed especially for the banking sector. A
blockchain framework was created by edge verve for this purpose which was distributed. Reduction of
operating and finance cost without any compromise on data security was the main target. The
blockchain experiment between ICICI bank and emirates nbd focused on areas such as open account
trade finance and cross border remittances.
OPEN ACCOUNT TRADE FINANCE
All manual, paper based processes are replaced by blockchain with digital assets where all the parties
will be able to see where the goods are in the supply chain, this will help in quicker release of funds.
The transaction that happened was the import of steel scrap by a Mumbai company from a Delhi
supplier. All the parties to the transaction were allowed to view the data and shipment in real time. The
parties could also track the trade document and authenticate ownership of assets digitally. A series of
encryption and secure digital contracts took place to execute the transaction and there was no human
intervention involved in this process. This shows that blockchain provided a secure environment for
the online verification by all parties and the transfer of title and original trade documents.
CROSS BOARDER PAYMENTS
To test the feasibility of performing cross border payments over blockchain technology network, this
transaction was carried out. It involved funds transfer from the emirates nbd branch in dubai to the
icici bank branch of Mumbai. Due to the use of blockchain technology the need for exchanging
messages/letters between the banks was eliminated. Hence there was a reduction in time and security
was intact.
R3 CONSORTIUM
R3 is an enterprise software firm which uses the distributed ledger technology to provide various
financial services. The company was formed in September 2015, as a result for frustration amongst
different banks due to various inefficiencies and unnecessary costs that they were experiencing with
the existing system. R3 is working with several banks, financial institutions and IT companies to
provide financial services using distributed ledger technology. R3 has introduced Corda, and open
source distributed ledger technology platform which carries out complex transactions for various
clients. It aims at redacting costs in the business transactions by eliminating
middle men. In focuses on three main areas they are finance sector, including cross border payments,
equity trades and asset re-hypothecation, supply chain management and trade financing.
NASDAQ
NASDAQ had initiated the project “Linq”, which is a blockchain technology based solution that
empowers private companies to digitally represent share ownership. Linq allows businesses such as
Nasdaq Private Market to address the existing limitation of liquidity in private securities by
streamlining payment transactions between multiple parties. Nasdaq, Inc. has partnered with Citi Bank
in order to establish an automated payment processing system. Citi Treasury & Trade Solutions is a
new integrated payment solution that processes all the payments and automates reconciliation by using
a distributed ledger that record and transmits payment instructions.
CRYPTWOCURRENCY MARKET RUPEE BLOCKCHAIN
Rupee has been dubbed as the first cryptocurrency for South Asia. Rupee was created in 2016 and it is
an open source cryptocurrency based on the Litecoin source code. Rupee was initially launched in
India by developer Adam Syed and it was made available on a few exchanges. Rupee is listed on
various exchanges like Coin Exchange, CryptoAPI, YoBit, Coin gather and Trade Satoshi. Rupee
crypto currency works on Proof of Work mining algorithm and requires energy and computing to be
mined. Rupee aims to generate revenue by developing payment gateway applications to merchants
who accept Rupee in their online transactions. Rupee team has sold 90% of the pre mine to early
investors on exchanges for development funding. Currently there are around 23,012,632 RUP coins in
circulation. Rupee Blockchain is presently in its early days and it is hard to say whether the crypto
currency will have an impact on the Indian economy and the people. However RBI and the
Government have envisaged the idea of bringing crypto currencies in India and establishing an
exchange that facilitates fair trade of crypto currencies.
EVALUATING THE PROBABLE CHALLENGES WHILE IMPLEMENTING BLOCKCHAIN
TECHNOLOGY
Blockchain has some challenges as well. Few of which are mentioned below. These challenges hurdle
the implementation of blockchain technology is our country.
1) Blockchain has an environmental cost
To replace the existing technology into blockchain technology will require a lot of financing. Not only
this, there is a lot of computing required to create the algorithm which is possible only by high end
computers which are again expensive. Taking the example of bitcoin in the year 2016 it was claimed
that the computing power required to keep the network running consumes as much energy as was used
by 159 of the world’s nations.
2) Lack of regulation creates a risky environment
Taking the example of bitcoin where there are no regulators to control the value of bitcoin making it a
risky affair. In the case of banking sector the intermediaros are eliminated since there is a peer to peer
transaction making the inermediars unwanted and the environment risky.
Apart from this for any technology there will be hackers ready to tamper the situation and create new
problems. Every new technology will have a security issue attached to it one way or the other making
it risky to transact.
3) Its complexity means end users find it hard to appreciate the benefits There is no doubt that the
technology is revolutionary, yet it requires some time and effort for individuals to understand how the
transactions are executed, its process and what is it that makes this technology so special. Once all
these things are clear one can appreciate and start using this technology to the fullest.
4) Blockchains can be slow and cumbersome
Due to the complexity and encrypted, distributed nature, blockchain transactions can take some time to
process, as compared to “traditional” payment systems such as cash or debit cards. The reason for the
delay is the authorization and verification that is taking place at the background. In the case of banking
the process appears to be faster but in case of bitcoin the trasaction speed is slower.
ANALYSING THE PROSPECT OF BLOCKCHAIN TECHNOLOGY IN INDIA
There is a lot of work is being conducted to implement blockchain technology in various sectors of the
economy. ICICI Bank executed India’s first international trade transaction using blockchain, since then
many other banks joined like YES Bank, Kotak Mahindra Bank and Axis Bank. In September 2017,
the Institute for Development and Research in Banking Technology (IDRBT), the research arm of RBI,
released a paper on the ‘Applications of Blockchain Technology to Banking and Financial Sector in
India.’ It also announced plans to launch a Blockchain platform. IDRBT also announced that India
could use Blockchain to digitize rupee. Government of Andhra Pradesh is planning to use blockchain
to record land titles and resolve disputes between the owners.
According to audit and consultancy firm PwC., more than 32 blockchain start-ups were founded in
India in 2016. They were established for the purpose of designing and creating end-to-end blockchain
solutions in India that can be used by the banking sector.
CONCLUSION
Blockchain can be revolutionary in the way we will all implement in our work - businesses,
governments, organizations and individuals. It provides a unique, secure way to establish trust in
potentially any transaction, enabling simplification of money, product, or confidential information
anywhere in the world. To understand the fundamentals of how this technology works, blockchain was
analysed. The attempt to go deeper lead focus of analysis not only to questions about technology but to
applications of blockchain in different industries, accompanied by discovering the level of realisation
of bitcoin technological platform. Due to many factors of influence on the future realisation of
underlying platform, and complicity of the problem, the method of scenarios was chosen as suitable
for answering the burning questions. We have seen that the third described scenario is realistic, and
that evidences prove this di-rection. Also, we discarded the first described scenario as pessimistic, in
spite of serious warning that it is possible to achieve. The blockchain technology is certain to overtake
the Indian financial system very soon. It can happen within the next 5 years. The reason behind
blockchain technology not having lot of popularity in India is because of lack of awareness among
people regarding its application. It can bring in the benefit of automation which can lead to faster and
efficient economic transformation of the country.
REFERENCE
1. Caralini, C. (2017, April 24). How Blockchain Technology Will Impact the Digital Economy.
Retrieved from University of Faculty of Oxford Law
2. Hines, P. (2017). Emirates and ICICI Bank : Blockchain Pilot Network. Celent, 10.
3. Karanjia, B., Lakshman, S., & Goswami, S. (April, 2017). Blockchain technology in India:
Opportunities and Challenges. Mumbai: Deloitte Touche Tohmatsu India LLP.
4. Marr, B. (2017, August 10). Practical Examples Of How Blockchains Are Used In Banking And
The Financial Services Sector.
