India is shocked with what is the greatest banking fraud in Indian history. Punjab National Bank (PNB) has been cheated of Rs 11,360 Crores by Billionaire Diamond merchant, Nirav Modi.
Everyone wants to know the depth of this fraud. Is it the tip of the iceberg or have more banks been cheated or involved?
Let’s see how this scam took place and how Blockchain technology could have prevented it.
Key aspects of the scam:
This scam has been going on since 2011 with a letter of undertaking (LOU). For those who don’t know, an LOU is a guarantee that the bank (PNB in this case), is obliged to repay the loan if the borrower (Nirav Modi in this case), does not repay the loan.
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?
How blockchain could have helped?
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, said fintech experts. And now, more than ever, is a time when those in power should understand the need to implement blockchain technology in the Indian banking system.
If an unauthorized LOU entered the system (PNB System), it would have been detected by higher-ups. The top management would have found something wrong. In fact, this scam would never have taken place as bank officials would be fools to risk it.
In the blockchain technology — No bank person whether of a higher level or lower level would be allowed to complete a transaction, all by himself. Blockchain Technology would have kept all bank personnel involved in the task within the loop. Any discrepancy would have been detected immediately and other banks would be warned.
It is definitely the time that Indian industries, especially banking, start warming up to using technology like blockchain. It is an ideal technology to ensure proof of integrity to the data and reduce incidents of fraud.
A few banks in India have already started testing the waters with blockchain. These include ICICI Bank, South Indian Bank of India, State Bank of India and so on.
Also, blockchain can make transactions faster, cheaper, and bring down the cost of services.
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