Reforming banking with blockchain

Banking in India is about opportunities and challenges. It is a sector that holds great potential, but at the same time is marred by chronic problems that are not going away in a hurry.

Yet, the promise that India is likely to become the third largest domestic banking sector in the world by 2050 behindG China and the US is drawing new players, products, and technologies to the country.

Even India's notoriously stodgy public sector banks have been growing in this secular growth story, with public sector bank assets rising from $1.52 trillion in the financial year (FY) 17 compared to $1.34 billion in FY 16.

India has a huge corporate debt problem, the country's corporate debt ratio is now up to 55% of the GDP, up from 49% a decade ago, according to the Reserve Bank of India (RBI). In terms of corporate debt to GDP ratio, India is behind its peers like China, Indonesia and Malaysia.

Banks are further stressed as Indian corporates' ability to meet interest expenses is among the lowest in the world. In fact, the country's non-performing assets (NPA) levels are for want of a diplomatic expression - terrible.

Today, there is an urgent need to address the requirements of common people that the banking sector is unable to meet as it finds itself in a twist over NPAs. This includes the need to finance small businesses as well as individuals.

In this respect, there have been some strides made like the introduction of payments banks that may play a role in bringing down the number of unbanked people. However, new developments in banking particularly surrounding blockchain may help revolutionise banking in India.

Blockchain, an immutable ledger, allows for the building of several solutions that banks seek. For example, identities can be verified digitally, securely facilitating KYC procedures.

Blockchain also acts as the backbone of digital payments, which can help build a cashless India. It can help deliver benefits securely through banking channels to those that deserve it the most, cutting down systemic corruption and tackling issues that plague the present system.

The initial deployment of RippleNet demonstrated international money remittance across banks can be made possible with distributed ledger technology.

Banks can also benefit from clearing and settlement services that can be built on the blockchain. Lending and trading services too will become more streamlined as they are moved to an immutable ledger.

Bridging the gap

The crypto economy is taking shape globally. As of September 2017, nearly $2.3 billion has been raised by initial coin offerings (ICOs). If India wants to have a share of this growth, it needs a model that facilitates the bridging of the crypto economy with traditional economy.

There are some influential Blockchain companies who are powering financial products for both the banked and unbanked while facilitating low-cost currency exchange. Indian startups today have an opportunity to take the pressure off the banking sector, which has little to offer to emerging businesses at the moment.

Even though India has made great strides in removing the number of unbanked people, a huge segment of the population still remains devoid of basic banking, mostly because of lack of infrastructure. However, blockchain-based services provided by the FinTech sector can provide services through mobile phone networks and devices at a fraction of the price.

The first large-scale implementation of serving this section of the population would come true with the deployment of Bank Ledger on top of Auxledger network which already holds over 53 million Indian population.

Blockchain has a potential to serve in several ways. Whether it is by facilitating low-cost currency exchanges and remittances, empowering overseas Indians or by enabling Indian businesses to transact overseas at a fraction of the present cost, helping build a global base.

The winner, in the end, would be the average person who could get a much enhanced and better user experience and can benefit from the security, verifiability, speed, and ease that blockchain-based banking technology is aiming to bring in, transforming the way we view banking in this country.

(The writer is CEO & Founder, Cashaa)