Can Blockchain Technology avoid Bank Frauds?

Blockchain Can Help

The long term solution that banks can look at for prompt detection and prevention of fraudulent transaction is by deploying a blockchain based system. Blockchain consensus is dependent on the entire ecosystem and not an individual. Hence, it would reject such a transaction immediately, since in normal circumstances, it is only one/few individuals who are responsible for the fraud and not the entire network of the bank. It also provides effective protection against fake LoUs.

“Blockchain technology can successfully prevent process frauds in banks, because no one single authority has full control over the movement of assets. If the core banking system is integrated with blockchain, any breach of limits can be immediately tracked and stopped. In the PNB fraud, only one officer had authority to execute the transaction end-to-end, so the fraud was not detected as it bypassed the core banking system.” Says Ajgaonkar.

Advocating the Blockchain usage, CEO & Co-Founder of Razorpay, Harshil Mathur

says, “A blockchain based system also provides high traceability with the records of transaction being made available in the transaction history, throughout the lifetime. This makes the system transparent and auditable, hence more immune to frauds.”

Software Companies should work with the relevant business function team to understand and identify the dependencies. Most of the conventional systems have maker, checker and authorizer concepts embedded, however, analytics based audit hooks and rule based cross platform reconciliations are seldom implemented.

Agrees with the same Vikram Pandya, Director Fintech of SP Jain School of Global

Management also expresses his thoughts, “With advent of machine learning, banking software can do realtime data analytics and notify the management about suspicious patterns.  Software firms should also start offering blockchain based solutions to bring more transparency and efficiency to some of the processes where dependency of value chain is higher. RegTech should be part of the software offering. Internal controls should be embedded within the system and checklist based approach should be implemented.”

Meanwhile, RBI also said it has formed a panel to look into reasons for factors leading to increasing incidents of frauds in banks. The panel will also look into reasons for high divergence in Non-Performing Asset (NPA) classification and provisioning by banks.

“In view of large divergences observed in asset classification and provisioning in the credit portfolio of banks as well as the rising incidence of frauds in the Indian banking system, it has been decided to constitute an Expert Committee under the chairmanship of Y H Malegam, a former member of the Central Board of Directors of RBI, to look into the reasons for high divergence observed in asset classification and provisioning by banks vis-a-vis the RBI’s supervisory assessment, and the steps needed to prevent it; factors leading to an increasing incidence of frauds in banks and the measures (including IT interventions) needed to curb and prevent it; and the role and effectiveness of various types of audits conducted in banks in mitigating the incidence of such divergence and frauds,” Apex bank states.

The members of the committee include Bharat Doshi, member, Central Board of Directors, RBI; S Raman, former chairman and MD, Canara Bank and former whole-time member, SEBI; and Nandkumar Saravade, chief executive officer, Reserve Bank Information Technology Pvt Ltd (ReBIT). A K Misra, executive director, RBI will be the member-secretary of the committee.


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