Is blockchain the solution to avoid traditional banking system fraud like the PNB scam?

Recently, a banking fraud was unearthed in India involving Nirav Modi and Mehul Chowksi. The banks involved were Punjab National Bank (PNB), Axis Bank, United Bank of India, IndusInd Bank, State Bank of India and UCO Bank, formerly United Commercial Bank.
The $212 Million Punjab National Bank fraud sent shockwaves across the banking fraternity.

PNB had recently released a statement which read,

“IndusInd Bank has no direct credit exposures to Nirav Modi nor any indirect credit exposures on the basis of the letters of undertaking (LOUs) issued by Punjab National Bank (PNB)”

State Bank of India Chairman Rajnish Kumar told reporters on Monday,

“We don’t have any direct exposure on Nirav Modi but we do have some exposure on Punjab National Bank”

The Allahabad Bank also confirmed,

“We have an exposure of around Rs 2,000 crore in the fraud detected by PNB some days back”

Kolkata-based UCO bank, yet another public sector bank, also claims an exposure in the Rs 11,400 crore Punjab National Bank fraud case valued at Rs 2,656 crore or roughly $412 million.

Axis Bank said they sold off the loan, hence they don’t have any exposure to the fraud.

The modus operandi of the scam was the illegal issuance by PNB of comfort letters that were used at foreign branches of various Indian Banks. Gitanjali Jewellers were allegedly the main culprit involving Nirav Modi and Mehul Chowksi (cousin and uncle duo).

Why could Blockchain be the difference?

The concept of blockchain revolves around transparency and uneditable transaction records which gets stored in a digital ledger and could be accessed by anybody. SWIFT mechanism could be modified by bank’s internal authorities and could be manipulated, unlike the blockchain ledger.

Jesse Cartwright, Founder of TexasBin Changers says,

“What happened in India is a clear evidence of why our systems are crappy. This is why banks fall, this is why recessions happen. We need to be in charge of what happens with our money”

Blockchain differs from traditional banking primarily because it removes the need for intermediaries and helps maintain and immutable log which helps in real-time transactions without the fear of tampering. The issuance of fake LoUs would not be possible on the blockchain and even if someone did the inconsistencies in the blockchain would have been noted by the community.

Although there has been no clarity of India’s stance on cryptocurrencies, Indian Prime Minister Narendra Modi recently supported and promoted blockchain and AI technology. Blockchain could also be potentially trained with AI systems to identify fraudulent transactions.

A top private banking official working for Axis Bank who refused to be named stated,

“Quality of loans are the reason behind the rising in NPAs and we have to look into blockchain to provide a possible solution”

Vidhwan Joshi, a bitcoin investor, and blockchain expert told,

“We know the weakness in the banking system of underdeveloped countries and we believe blockchain is the solution.”

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