A group of 11 big banks will soon launch India's first block-chain linked funding for small and medium enterprises (SMEs), a move which may bring about a drastic change to lending practices.

These banks include ICICI Bank, Kotak Mahindra Bank, Axis Bank, HDFC Bank, RBL Bank, Yes Bank, Standard Chartered Bank and South Indian Bank. State Bank of India, IndusInd Bank and Bank of Baroda will be involved in this initiative as outside members, The Economic Times reported.

"The idea of having such an organisation is to remove any communication hurdle among the different banks. A blockchain network can only thrive if the entire ecosystem is working in synergy through a single network," Abhijeet Singh, Head of Business Technology at ICICI Bank, told the newspaper.

A consortium called the Blockchain Infrastructure Company (BIC) is mediating this discussion between the participating banks. Representatives from the banks have met a few times to establish a live network to make supply-chain finance more transparent and secure.

Singh added that the main reason for having a ledger-network is to ensure transparency in the credit disbursement process, 'especially in the underbanked section'.

Through this network, banks will be able to access public credit data, which will help them steer clear of high-risk situations. It will also make information available for both large corporates and SME lenders to avail credit.

Of the total outstanding corporate credit with commercial banks, the MSME sector's share is just 17.3 percent. Viral Acharya, Deputy Governor of the Reserve Bank of India, had recently said that credit penetration for MSMEs is very low.

Akhil Handa, Head of Fintech at Bank of Baroda, said supply-chain players, banks and other players have separate technological platforms and a common blockchain platform will harmonise trade flow.

Industry players are also hoping to cut down costs with this system and deepen their credit catchment area by encouraging more SMEs to avail formal credit.

A blockchain is a synchronised distributed ledger where data entry by any member is visible to all stakeholders in the supply-chain but the data entered at any point is immutable. "It is impossible to change the entry once it is made, therefore providing immunity to frauds," the report qouted Vivek Belgavi of PwC as saying.