RBI research arm tests blockchain for clearing, settlement

The research arm of the Reserve Bank of India (RBI) has created a blockchain proof-of-concept (PoC) architecture, presented in a white paper published in January 2017.

In its paper, Applications of blockchain technology to banking and financial sector in India, the Institute for Development and Research in Banking Technology (IDRBT) says it has tested the technology for core banking processes in the country.

Blockchain, or distributed ledger, technology has become the research objective for many central banks across the globe in the past 12 months, with many looking into its potential benefits for both centrally distributed currencies as well as clearing and settlement.

For India, blockchain has the potential to address certain limitations in the current financial system, the paper says. Through "modernising, streamlining and simplifying the traditional siloed design of the financial industry infrastructure", these limitations could be reduced.

The IDRBT has been researching blockchain technology for the past two years. In order to collate its research, the institute organised a collaborative project with experts from the banking industry to produce an in-depth analysis of blockchain, including a "prospective road map" for adoption in the Indian banking and finance sector.

To gain first-hand experience of the implementation, the IDRBT organised a PoC blockchain network that simulated five banks and a regulated clearing authority to study banking and consumer interaction. The team tested two use cases – domestic trade finance and "enhanced information" payments.

"The results of the PoC have been quite encouraging, giving comfort and confidence in the implementability of blockchain," said AS Ramasastri, director of the IDRBT.

The project used "Hyperledger Fabric" as the underlying platform, with the network having been configured and established on a cloud environment. Banks were represented on the platform with "individual validating peers and associated application servers", while the clearing authority had a "clearing peer and a clearing server".

The model handled a "simplified business workflow", the paper says, with India's Immediate Mobile Payment providing the "payment backbone". Using the existing mobile infrastructure means the blockchain technology can be "easily extended to incorporate additional validation/flow components" the paper explains.

"It demonstrated the possibility of integrating payment information with payment initiation, which has been a key requirement from the corporate/retail users alike," the paper adds.

The IDRBT's project focused on the validation of business workflow and the system's ease of use. Moving forward, scalability and security need to be studied in more detail, the paper says.