Clearing bank NPA’s with Blockchain

The picture sets the context and it is what it is ,Right !!!!. Almost all the banks are bleeding because of Bad Loans/NPA’s globally. There has been a lot of regulatory restrictions, rules and guidelines about the Loan processing but still banks end up in accumulating NPA’s. If we take Indian banks ,as of FY 2018 there are around $ 210 Bn worth NPA’s of which SBI alone has $30 Bn worth of them. In other words NPA’s are almost 1% of India’s GDP (It is $2.3 Trillion as of FY 2018) which is very alarming numbers.

To tell in simple words , the hard earned money of common man is leaking and it is not good for any economy.Though Government and RBI plays a major role in auditing the balance sheets of the companies there is every chance that these can be manipulated.So how to curb such malefaction??

SBI along with 27 other banks (both Private and Public) created a consortium back in February 2017 and decided to launch a BankChain betting on Blockchain Technology.BankChain aims to reduce fraud and maximise efficiency, security & transparency in the banking systems by updating Know Your Customer (KYC) regularly and sharing the information within the consortium banks. The solution is built on Hyperledger Sawtooth, a modular platform for developing and deploying blockchains, developed by Intel.

The immediate results are seen in the high profile cases like that of Kingfisher airlines(NPA worth $1.4 Bn) and Nirav Modi(NPA worth $1.7 Bn). Though these are fled cases, but it has helped in finding out the worth of NPA’s and curbing from providing further loans to them.It also helped in nailing out possible NPA’s

How does Blockchain accomplish this? The beauty of BlockChain lies in its features

a).Traceability — A blockchain based system provides high traceability with the records of transaction being made available in the transaction history, throughout the lifetime. This makes the system transparent and audit able, hence more immune to frauds.

b).Transparency and Immutability — All the parties coming under BlockChain ecosystem is notified and only after their approval processing of financial products/solutions to customers starts leading to high Transparency.

c).Distributed Ledger — 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. 

d).Process IntegrityUsers can trust that transactions will be executed exactly as the protocol commands removing the need for a trusted third party like RBI(where approval/information retrieval takes sweet time).

It needs a lot of application and effort to chart down a strategy and come up with an agreement in the form of Smart Contracts to accomplish the goal. Let’s hope and strive for more and more processes to come under BlockChain umbrella and make banks/financial institutions more trust worthy.

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1 thought on “Clearing bank NPA’s with Blockchain”

  1. Nice and informative article.Want to see the technical specifications how it was implemented to know better

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