If blockchain technology was used for transactions and accounting, the fraud at state-owned Punjab National Bank (PNB) could have been prevented or at least detected earlier, said fintech experts. And now, more than ever, is a time when those in power should understand the need to implement blockchain technology in the Indian banking system.This is because frauds are on the rise, especially in public sector banks. According to a Reserve Bank of India (RBI) report, sourced by Reuters through an RTI, state-run banks have reported as many as 8,670 "loan fraud" cases totalling Rs 61,260 crore over the last five financial years up to March 31, 2017.And with the dust still settling over the Rs 11,300 crore fraud at PNB, an important point to ponder is how the technology used by the bank allowed its employees to bypass the internal system and carry out transactions by issuing fake letters for seven long years.Diamantaire, Nirav Modi , against whom PNB has filed a complaint was allegedly helped by a former bank employee, Gokulnath Shetty . He was a deputy general manager in the foreign-exchange department in one of its branches in Mumbai.Shetty allegedly issued several fake letters of undertaking (LoUs) from PNB- without any collateral- for Modi. The bank claims that for seven years the employees then bypassed the lender's internal messaging system in order to avoid detection, and placed instructions via the SWIFT global payment system asking overseas branches of Indian banks to fork out the cash as loans.So, how can using blockchain technology prevent such fraudulent activities? Can it completely get rid of frauds from the banking system?Blockchain is a digitally distributed ledger system that records an asset's movement and ensures point-to-point tracking of information on transactions that can map its journey. The fact that it is a distributed ledger, i.e., a decentralised system, makes transacting on blockchain transparent. Decentralisation is one of the key aspects of blockchain because no single authority has full control over it, there is no central point of failure and the entire system operates in the state of consensus making the transactions transparent. By storing data across its network, blockchain eliminates the risks that come with data being held centrally.Blockchain can help the financial industry ensure transparent and immutable transactions. Jesse Chenard, Founder and CEO of MonetaGo, a US-based blockchain firm says, "What happened at PNB was the result of numerous systemic failures to detect simple human malfeasance. These failures would have been easily spotted and prevented on blockchain. It's surprisingly common for the information settlement mechanism like SWIFT to be on a separate ledger from the payment settlement mechanism which is the system more likely to be scrutinised by the bank's internal controls, as well as the various audits, including inspection by regulators."A Deloitte report from April 2017 states that blockchain potentially provides a solution for banks as it "inherently helps eliminate intermediaries, maintain immutable log of transactions and also facilitates real-time execution of transactions."A key feature that can help prevent and detect fraud is the smart contract. Smart contract or blockchain contract or digital contract, in case of banking, is a program capable of digitally facilitating, verifying or enforcing the negotiation or performance of a contract."In the recent public sector bank fraud, issuance of fake LoUs would not have been possible on blockchain as the smart contract would have identified inconsistencies based on automatic reconciliation with core banking system and following the established limits, it would have restricted the payment initiation over SWIFT network," said Vikram Pandya - Director, FinTech, SP Jain School of Global Management."While blockchain and connected smart contracts can take care of the audit trail and procedural compliance, the connected ecosystem can ensure all the parties share the collective intelligence. If the core banking system is integrated with blockchain, wilful defaulters and clients breaching individual or group borrowing limits can be immediately identified," Pandya said.Chenard explained that in a private permissioned blockchain, auditors, regulators and payment processors have real-time access to transactions, making it relatively easy to identify any attempted fraud or hack. "If a bank's systems use a distributed-ledger platform that accommodates information settlement, then the payments and all of the associated information are available to all of the participants in the transactions, as well as to the regulators and auditors."There are more features that can be useful. Blockchain technology can be used to train various machine learning algorithms to identify fraudulent patterns. Further, it would be impossible to forge documents as entire process is cryptographically secured and immutable, said Pandya. "Digitally signed transactions can guarantee non-repudiation," he added.But of course, blockchain is not a panacea for all issues facing the banking system today. It is complex and industries globally are still gauging how this technology can be used optimally. Those who want to find loopholes and game the system can do it on blockchain as well. It is up to the banks and their tech teams to come up something that is tamper-proof.However, it is definitely time that Indian industries, especially banking, start warming up to using technology like blockchain. It is an ideal technology to ensure proof of integrity to the data and reduce incidents of fraud.A few banks in India have already started testing the waters with blockchain. These include ICICI Bank, South Indian Bank of India, State Bank of India and so on. It was reported last month that more than a dozen Indian insurers have jointly begun the country's first blockchain project to help in improving business and agent track records while flagging fraudulent transactions.SWIFT, too, is planning on implementing blockchain. According to a press release on its website from October, it said that "tests show blockchain has potential for global liquidity optimisation.""It is good news that SWIFT is already planning to implement blockchain based solution. Further, SWIFT has recently signed a memorandum of agreement with seven central securities depositories to look into how blockchain can be used for post-trade processes," Pandya adds.The Indian government is also planning on implementing blockchain technology across various sector. Finance Minister Arun Jaitely in his budget speech said, "The government will explore use of block chain technology proactively for ushering in digital economy." For instance, Niti Aayog, the government's premier think tank, is looking to bring out a discussion paper on the prospective use of blockchain technology in areas such as land records and electronic health records.Blockchain is still in its nascent stages and industries are still just experimenting with it. The Deloitte report states that "due to lack of any precedence, banks will have to opt for a trial-and-error approach either through internal trials or partnering with a specialized technology firm." It will be in the best interest of banks as it can increase security and allow for tamper-proof transactions. Also, blockchain can make transactions faster, cheaper, and bring down the cost of services.