For the time, India has recently witnessed the payment of a Letter of Credit(LC) using blockchain technology between Reliance Industries Ltd (RIL) and the U.S. based Tricon Energy with the support of HSBC Holdings Plc. The financial trade transaction was executed by the HSBC India acting as the advising and negotiating bank for RIL, while the ING Bank issued the LC for Tricon Energy.
The main reason behind this motive was to increase the efficiency as well to reduce the time taken by the process for issuing of the Letter of Credit. With the LC, the issuing bank guarantees that the exact payment from a buyer to a seller will be received within a stipulated deadline. In case of any discrepancies, the bank will be liable to pay the whole or leftover amount to the seller.
Furthermore, with the successful delivery of the LC, Srikanth Venkatachari, RIL Joint Chief Financial Officer stated that blockchain has proved to be a turning point for the finance industry. He explained that while traditional systems used to take 7-10 days for completly processing the LC, blockchain reduced the duration to less than a day.
Similarly, HSBC’s Head of Global Banking and Markets, Hitendra Dave, also shared his views on the same. He stated that blockchain offers more security and transparency of the documents, leaving no room for frauds and delay. This is because information is stored in several blocks which are immutable and tamper-free, says Dave.
Interestingly, in the current system, financial trades are done through a paper-based method which then is exported with the other documents to each party by courier or fax, says Reliance. This slows down the entire process making the trade continue for a very long period. Additionally, the processes involve increased cost. However, blockchain can solve all these issues thereby delivering a more efficient base for trades to continue smoothly.