India stands shocked due to the $ 1.77 billion scam by Billionaire Diamantaire, Nirav Modi. If blockchain technology was used for transactions and accounting, the fraud at state-owned Punjab National Bank (PNB) could have been prevented or at least detected earlier.
Blockchain can help the financial industry ensure transparent and immutable transactions. Jesse Chenard, Founder and CEO of MonetaGo, a US-based blockchain firm says, “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 Deloitte report from April 2017 states that blockchain potentially provides a solution for banks as it “inherently helps eliminate intermediaries, maintain immutable log of transactions and also facilitates real-time execution of transactions.”
A key feature that can help prevent and detect fraud is the smart contract. Smart contract or blockchain contract or digital contract, in case of banking, is a program capable of digitally facilitating, verifying or enforcing the negotiation or performance of a contract.
“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,” said Vikram Pandya – Director, FinTech, SP Jain School of Global Management.
“While blockchain and connected smart contracts can take care of the audit trail and procedural compliance, the connected ecosystem can ensure all the parties share the collective intelligence. If the core banking system is integrated with blockchain, wilful defaulters and clients breaching individual or group borrowing limits can be immediately identified,” Pandya said.