How adopting blockchain technology can help prevent PNB-type fraud

Cracking a whip on the alarming cases of fraud that has been taking place in the banking sector, Finance Minister Arun Jaitley has ordered his ministry to examine all nonperforming assets of more than Rs 50 crore for potential fraud, and to identify operational and technical gaps. This comes in the wake of the Rs 12,600 crore fraud involving Punjab National Bank and billionaire diamond merchant Nirav Modi and his uncle, Mehul Choksi, owner of Gitanjali Gems.


Modi had perpetrated the massive fraud over a period of seven years with the help of certain rogue bank officials from PNB who had issued Letter of Undertakings or LOUs, via SWIFT, without following prescribed procedures. A blue corner notice has been raised for Modi, who has left the country, while Firestar Diamond, a US company owned by Modi, has filed for bankruptcy in a New York court and is getting ‘strong interest’ from buyers amid USD 2 billion scam probe.


The PNB fraud is just a tip of the iceberg, experts warn. According to data from RBI gathered by Reuters through the Right To Information Act, state-run banks have reported a total of 8,670 loan fraud cases which totals to Rs 612.6 billion over the last five financial years up to March 2017. And the actual number of fraudulent loans may well be in excess of the number since the smaller frauds are always not reported. This has led to industry experts calling for the adoption of technologically advanced control systems to detect and prevent fraud.


According to Jesse Chenard – CEO and Founder of MonetaGo, a New York-based company which works with financial institutions and central banks to provide blockchain solutions, frauds generally take advantages of gaps in the monitoring of cash flows, fund transfers, or other governance methodologies. A variety of core banking systems being implemented in various stages over long periods of time result in limited interoperability. This when combined with paper-based and manual processes, often affects reconciliation procedures.


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