Nirav Modi , LOU Fraud & Blockchain

The last 2 days in Indian media have been crazy about the alleged duping of the Indian Bank , PNB to the tune of 11K crores INR . While there has been a lot of upheveal as to how systemic failure was initiated and sustained in the last 7 years , it was only in January , they say , that a personnel retired requiring the trust factor to be recreated .

While most of oriental democracies and commerce sustain on trust in the past 5000 years for the simple reason of the fear of losing trust will tarnish one's reputation for life and will leave untouchable for business . Come the new age international commerce ways of Swift , Banking in the last 4-5 decades and then there are these macroeconomic gaps to be played with owing to different levels of maturity of economies of different countries. While the above is the hypothesis , the current standing of RBI as referred in yesterday's press was for PNB to honour its unverified or verified LOU's . As one of a fellow ISB alumns questioned in informal chat , How did this go unnoticed through the whole statutory audit system and trail . Well , this leaves for a detailed trail analysis , but what could be a possible solution that central banks across the world institutionalize to prevent such a happening , or if it has been happening , how to unravel .

Blockchain in the current technology scape seems to be solution to be given a serious look and a fit case for Interbank trust and Inter Central bank trust mechanism . How it can be done?

The Central bank , in this case RBI can own a distributed ledger a central home of all trust based securities and notes and Lou's .This can be subscribed by all participating public and private banks within the country. Such a smart contract will have the following features :

?Desired outcomes

?Variables for contract

?Rules for contract

?Self Execution for flow

What the Smart contract will do , is then create a debit for every Lou which is issued , and a credit once the amount is transferred through Swift .This will eliminate in total all alibis of translucency in the system and create a open audit trail for systemic checks to be more robust .

Do write to me with comments and suggestions . We at SixthSenseData will be happy to support creation of working concept and partner with interested enterprises on this.