Blockchain Solution May Have Saved Indian Banking Fraud
Blockchain solution may have saved a recent banking fraud of 11,400 crores detected by PNB(Punjab National Bank). The bank filed a FIR against a diamond merchant Nirav Modi, his uncle Mehul Choksi along with a few other relatives who with the help of a couple of bank employees issued an unauthorized Letter Of Understanding (LOU) for this huge transaction from the foreign branches of Axis Bank, Union Bank Of India and Allahabad Bank. The bank employees of a few other banks are under the scanner of CBI.
Why Do We Need An Improved Banking System?
Reserve Bank of India (RBI) has reportedly stated that over the five years up to the financial year 31 March 2017, the state banks have a total of 8,670 “loan fraud” cases which totals up to a sum of Rs 61,260 crore. This data gives us an insight of the very flaws and shortcomings of our country’s banking system. To put an end to this rampant degradation of the financial sector, we must find out a solution.
How can Blockchain Help?
Many experts are suggesting that blockchain technology could have been of help to avoid such banking frauds or at least the defaulters would have been caught earlier. Blockchain being decentralized, distributed ledger ensures to track the information regarding all the levels of transactions and as it is decentralized the data stored cannot be tampered or changed easily which in turn gives much more transparency to the transactions.
CEO and Founder of a US-based Blockchain Firm, Jesse Chenard, stated, “What happened at PNB was the result of numerous systemic failures to detect simple human malfeasance. These failures would have been easily spotted and prevented on the blockchain.”
A key feature of blockchain technology, a smart contract can be of use in such fraud cases. Vikram Pandey , director of Fintech and Sp Jain School Of Global Management, explained, “In the recent public sector bank fraud, issuance of fake LoUs would not have been possible on blockchain as the smart contract would have identified inconsistencies based on automatic reconciliation with core banking system and following the established limits, it would have restricted the payment initiation over SWIFT network.”
The authority must understand that its high time we start engaging technologies that can become a potential solution such as blockchain so as to ensure transparent transactions and avoid such scams. State governments like Andra Pradesh, have already adopted the blockchain technology for better governance. Even some of the Indian banks have started to test the potential of the blockchain. These banks include ICICI Bank, South Indian Bank of India, State Bank of India and much more to follow.