Blockchain tech could help prevent frauds like at PNB
The adoption of blockchain by India’s banks could help avert frauds such as the one at Punjab National Bank as the disaggregated and transparent nature of the technology, which updates information across all users simultaneously, would have ensured that various officials would have instantly been alerted to the creation of the letters of undertaking (LoUs), according to bankers and blockchain specialists.
“Transaction reconciliation systems at present do not result in immediate notification,” Mrutyunjay Mahapatra, Deputy Managing Director and Chief Information Officer at State Bank of India, told The Hindu. “Using blockchain, all parties on the chain will be immediately notified about a transaction.”
Blockchain, a distributed ledger technology originally developed as an accounting system for the cryptocurrency Bitcoin, is being researched across the banking and financial services industries for the potential benefits it may offer in an increasingly digitised business environment.
Central banks including the U.S. Federal Reserve and the Reserve Bank of India have been examining the technology to understand the regulatory challenges it may pose.
“Blockchain potentially has far-reaching implications for the financial sector, and this is prompting more and more banks, insurers and other financial institutions to invest in research into potential applications of this technology,” the RBI’s Working Group on FinTech and Digital Banking said in a report. “Market participants in other securities markets are exploring the usage of blockchain or distributed database technology to provide various services such as clearing and settlement, trading,” the report noted. “Indian securities market may also see such developments in the near future and, therefore, there is a need to understand the benefits, risks and challenges such developments may pose.”