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The Indian finance sector is an amalgamation of several distinct segments that work harmoniously. These include commercial banks, fintech startups, NBFCs, mutual funds, and payments banks. Commercial banks in India own more than 64% of the country’s total financial assets, making up the largest percentage of the Indian financial sector.
However, with the penetration of blockchain technology in India, the financial landscape is dynamically changing. Invented by Satoshi Nakamoto in 2008, a significant portion of the world, including India, has only recently caught up with blockchain technology.
During a forum hosted by the Federation of Indian Chambers of Commerce and Industry, Indian Finance Minister Nirmala Sitharaman expressed her optimistic attitude toward the country’s adoption of Distributed Ledger Technology, one of the components that make up technology.
“Use of blockchain technology is going to rise by about 46% in the next few years.”
~ Nirmala Sitharaman, Indian Finance Minister
(source)
Furthermore, industry leaders, including Pankaj Diwan (Founder & CEO, Idealabs FutureTech Ventures) and Prasanna Lohar (CEO, Block Stack), have joined forces to create the India Blockchain Alliance (IBA) to develop a holistic framework for blockchain adoption in order to make India a blockchain and Web 3.0 hub.
Blockchain technology can drastically alter how you and others see your most sensitive and important data. It aids in preventing fraud and other forms of illegal behavior by providing an immutable record encrypted from beginning to end. Anonymizing user data and enforcing permissions to restrict access are two ways in which blockchain may be used to solve privacy concerns.
2. Traceability
The ability to track items throughout a supply chain is another significant advantage brought forth by blockchain technology. Flaws of the traditional methods may be circumvented with the use of blockchain traceability solutions, including difficulties in detecting and removing counterfeit items, theft, and a lack of an audit trail.
3. Decentralization
Each node operator owns a little piece of the network that runs the blockchain ecosystem, and they all have equal access to the information created and stored there. Bringing confidence to the digital environment is difficult, but decentralization is one method.
4. Greater Speed
The speed with which all participants in the network validate transactions in real-time increases the system’s overall efficiency, and the automated transactions eliminate human mistakes. Cryptocurrency is not the only digital asset that uses blockchain technology. Every blockchain-based system has the same lightning-fast transaction times and streamlined operations.
Additionally, blockchain offers transparency, reduced costs without intermediary bodies, and immutability since data, once entered, can’t be changed, deleted, or modified.
When used in the financial services industry, blockchain technology removes the need for a centralised authority to validate transactions. This decreasing both the time and money required for settlements.
Blockchain technology in banking institutions can assist in quicker and safer data sharing among themselves. It allows for more accurate asset provenance tracking, streamlined general transaction processes, and cheaper and more efficient international money transfers.
The financial services industry uses smart contracts’ technological novelty to automate various transaction procedures. The primary advantage is that it streamlines the process of securing funding for agreements and contracts in the company.
Furthermore, most financial firms must undergo an identity verification procedure with their customers to avoid fraud and money laundering. Keeping consumer data on a blockchain that multiple financial firms may access will reduce the expense and time, making the KYC (Know Your Customer) process quicker and less burdening. As for its use in the insurance sector, the use of smart contracts has the potential to speed up claim processes.
The Indian finance ministry, Reserve Bank of India, and other stakeholders are working towards implementing blockchain technology. Starting with ‘digital money’ in her parliamentary budget statement. The Minister of Finance said that digital money would result in a more efficient and cost-effective currency management system.
Consequently, the RBI will soon start producing digital rupees by leveraging blockchain and other technology. The goal is to reduce the financial and physical effort for money management. The RBI is working on a “phased implementation approach” for Central Bank Digital Currency (CBDC). Additionally, a trial of digital currency may be implemented soon.
Top blockchain companies in India, like CoinDCX, have already implemented blockchain technology to provide consumers access to various financial goods and services, supported by market-leading security and insurance coverage.
Furthermore, fintech companies like Snigzy have integrated AI with blockchain technology to create easy-to-use, compatible, and reliable products to mitigate risk and enhance compliance operations.
Blockchain technology in banking has so far proven to be of great benefit. For instance, YES Bank has integrated blockchain for invoice financing tool, reducing the time taken from 4 days to almost real-time. Axis Bank, too, has integrated the technology in collaboration with Ripple to establish an inward remittance solution.
When it comes to international trade papers and remittance transaction messaging, ICICI Bank was the first Indian bank to use blockchain in banking for exchange and authentication.
The blockchain revolution in the Indian finance sector is almost inevitable. Further advancements in technology adoption will be determined by its success in pilot studies and applications.
We are optimistic that after reading this blog, you’ve fairly understood how blockchain will impact the finance sector. However, if you are wondering how it’ll apply to your business and its consequences, we are here to assist you.
GJM & CO. and its experts can walk you through the impact of blockchain on the finance industry and assist in interpreting its implication for your business.
Should you have any queries or need consultation, Schedule a Call today or write to us at info@gjmco.in.