How blockchain can prevent PNB-like frauds
Blockchain is a digitally distributed ledger system that records an asset’s movement and ensures point-to-point tracking of information on transaction..
If blockchain technology was used for transactions and accounting, the fraud at Punjab National Bank (PNB) could have been prevented, opine fintech experts. And now, more than ever, is a time when those in power should understand the urgent need to implement this technology in our banking system.
This is because frauds are on the rise, especially in in public sector banks. According to a Reserve Bank of India (RBI) report, sourced by Reuters through an RTI, state-run banks have reported 8,670 “loan fraud” cases totalling Rs 61,260 crore over the last five financial years up to March 31, 2017.
With the dust still settling over the Rs 11,300 crore fraud at PNB, an important point to ponder is how the technology and framework used by the bank allowed its employees to bypass the internal system and carry out transactions by issuing fake letters for seven long years.
Diamantaire, Nirav Modi, against whom PNB has filed a complaint was allegedly helped by a former bank employee, Gokulnath Shetty. He was a deputy general manager in the foreign-exchange department in one of its branches in Mumbai.
Shetty allegedly issued several fake letters of undertaking (LoUs) from PNB- without any collateral- for Modi. The bank claims that for seven years the employees then bypassed the lender’s internal messaging system in order to avoid detection, and placed instructions via the SWIFT global payment system asking overseas branches of Indian banks to fork out the cash as loans.
So, how can using blockchain technology prevent such fraudulent activities? Can it completely get rid of frauds from the banking system?