While the central bank of India and other Indian regulators continues a crackdown on bitcoin and other cryptocurrencies, leading banks and financial institutions in the country are exploring the use cases and benefits of crypto and its distributed ledger technology (DLT)
According to a report published in the Economic Times on January 5, 2018, a significant number of banks, as well as other financial institutions in India have ventured into the crypto space despite Reserve Bank of India (RBI)’s aversion towards the ecosystem. They are reportedly employing nascent technologies to pay vendors, suppliers and as a transparent treasury management tool.
The Cryptocurrency Crackdown
In July 2018, India’s apex bank exercised a ban over local banks and other financial institutions under its purview, asking them to stop providing any support or services to cryptocurrency linked businesses. RBI declared at the time:
“In light of the inherent risks, it has been decided that, with immediate effect, entities regulated by RBI shall not deal with or provide services to any individual or businesses dealing with or settling cryptocurrencies.”
Even with RBI’s somewhat harsh outlook towards crypto-assets, the craze and adoption rate for the digital tokens has seen a rise. WazirX, a local cryptocurrency exchange, recently claimed record trading volumes. Moreover, several forward-thinking corporate organizations have been reportedly jumping on to the wagon to explore the scope of the said technology further.
Just last month, Tech Mahindra, an Indian conglomerate, announced that they are employing blockchain technology to enhance their grapes export Business. Another conglomerate giant, Reliance Industries acquired 5.56% stake in a UK based blockchain startup.
Using Cryptocurrency and its underlying technology
According to the publication, several Indian firms and banks including Hindustan Unilever Ltd (HUL), a Mumbai-based consumer goods company, Reliance Industries Ltd (RIL), HDFC Bank and ABG Shipyard and others have been exploring crypto and blockchain-based pilots, employing the technology for internal treasury management, record keeping, payments, trade and finance functions and more.
ET quoted a person with direct knowledge of the matter:
“The cryptocurrency would only be used by the companies and banks internally. It will mainly be effective as a working capital management tool, where rather than actually transferring money, cryptocurrency will be transferred and accounts shall be reconciled at a later date.”
While HUL told ET that they are constantly looking to bolster digital capabilities, RIL, HDFC Bank and ABG Shipyard didn’t respond to their queries. Notably, no timeline for scaling up usage has been declared by any of the companies and banks involved in the pilot projects.
Any conglomerate has to move money back and forth among the various entities. Such transfers could be numbered in millions annually, especially in infrastructure and banking. Here’s where an internal cryptocurrency could come in handy as the transfer would be secure, cheaper and transparent.
Sai Venkateshwaran, partner and head of CFO advisory at KPMG India noted:
“Several large firms are evaluating various use cases of DLT, including in areas such as managing intra-group transactions and for more efficient cash and working capital management. Apart from greater efficiency and accuracy, it has the potential to bring enhanced levels of transparency for group treasury management and also cost savings.”
The publication further quoted a person handling one of such projects.
“There is a legal angle to it, there is a tax angle and then there is an accounting angle. Those would be dealt with at a later stage.”
Industry experts believe that limiting such currency to internal usage might give such companies a free pass. Vivek Belgavi, partner and fintech leader, PwC India stated:
“Many banks and consortiums like BIC (Blockchain Investors Consortium) have also tried to bring in blockchain technology in the trade finance area and results are positive especially around ecosystems like buyer-supplier or logistics. The concern for the regulators is the speculation that was happening in bitcoin or the other cryptocurrency. There is no problem with using the underlying blockchain technology.”
Will the Indian government warm up to Crypto?
In their on-again, off-again relationship with cryptocurrency, the Indian government is working towards forming correct guidelines for the assets. While the earing of RBI’s imposed ban is around the corner, a report published the central bank suggests that cryptocurrencies are not a threat.
As for the future of cryptocurrencies in 2019, a forecast report released by Weiss Ratings predicts that Bitcoin will be heading towards a new all-time high in 2019.