Blockchain Could Have Blocked Nirav Modi

by February 27, 2018 0 comments

Deploying a Blockchain System could have prevented tampering of the SWIFT System in case of Punjab National Bank

Banking sector is the engine of economic growth and any malfunction in this engine sends shivers down the entire economy.  In the recent years, banks have achieved phenomenal growth which has predominantly been enabled by technology.  But human intervention can lead to situation where one can not imagine. PNB fraud case is also a case of technology v/s human intervention. If seeing it from a technology aspect, the case could be considered as a hack in the system however it is indeed more of a bank break-in rather than considering as a cyber crime.

In the wake of PNB SWIFT-related fraud involving significant amount, RBI also reiterated its confidential instructions and mandated the banks to implement, within the stipulated deadlines, the prescribed measures for strengthening the SWIFT operating environment in banks.

Dr. Preeti Goyal, Professor, Finance & Accounting, Great Lakes Institute of Management

Dr. Preeti Goyal a professor of Finance & Accounting at Great Lakes Institute of Management in Gurgaon says, “In the coming years this sector is expected to witness explosive changes and growth with the use of newer technologies such as NFC, block chains, robotic process automation etc.  Unfortunately, the fraudsters have also started using innovative methods to misuse the banking system.  At the same time tools and techniques such as real time neural network based behavior models and forensic accounting are already changing the face of fraud detection and prevention.  This is like a cat and mouse game between the banks and fraudsters and technology remains both a root cause as well as the solution to this.”

While the Nirav Modi fraud has been highlighted as a technology fraud, the focus should actually be on the lack of internal controls, checks and balances that led to this situation.  It is not that bank frauds did not happen prior to the use of technology.  Many of us will recall how Harshad Mehta duped the banking system of crores of rupees in late 1980s – at that time it was said if banks were automated; it may have been possible to prevent the fraud.

“There is no nirvana to prevent bank fraud. The solution lies in strengthening the internal controls, checks and balances and at the same time investing in latest technology and training people to use it.” She adds.

While this fraud has occurred at one of the branches of PNB, it would eventually affect other Banks in India and outside India due to nature of such contracts. If PNB backs out of its obligations to pay and takes legal route, other banks will also a take a hot.

Rajeev Mahajan, Co-Founder, CEO & Director, Antworks Money

“As we have seen in past, such frauds are not limited to one branch and we may see other Banks unearthing similar frauds in near future in one of their branches. Considering that Public sector Banks in India are Government backed, there is no immediate threat on existence of any of banks. However, such news weakens the faith of Indian Public and International investors in the Banking system. This is not a good news and will have long term repercussions for Indian banking system as a whole. This is also a final wake up call for banks to put their house in order.” Says Rajeev Mahajan, Co-Founder, CEO and Director at Antworks Money, also the Ex-Senior President – MNC Infrastructure, Yes Bank.

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