20 Jun 2019 19:14 IST

Blockchain can reshape the financial sector

Banks and NBFCs must adopt new tech to identify potentially risky transactions, NPAs

The new government has a series of challenges — the increasing unemployment rate, US trade issues, black money, infrastructure challenges and NPAs, to name a few. Though economic growth is expected to keep a steady pace in coming years, there are a plethora of issues that need an immediate action plan.

Going digital

Adopting digital payments and reducing cash transactions to the extent possible can act as a driver towards a healthy economy. Though digital payments have flourished in the recent past and many payment platforms have cropped up, a major chunk of population is still oblivious to cashless transactions. Apart from other intricacies such as internet outreach, availability of devices for digital payment such as card swiping machines and smartphones, the most important factor that affects the rate of digital transactions in India is trust.

For the government to instil the habit of digital payments among the citizens, it should develop new ways to assure people that their money is safe, and the transaction is secure. Unavailability of smartphones in rural India is a big hindrance for carrying out digital payments, but this can be looked at from a different angle. Instead of equipping all the citizens with smartphones in order to encourage them to pay online, is there a way where they can pay without using any device? The answer is biometrics.

The Aadhaar initiative, which can be considered an exhaustive database of all citizens, can be leveraged here. This data can be used by channelling the payments through biometric scanning devices installed at merchant sites, connecting it through the bank after identification process is completed, and carrying out the payment.

This solves two purposes: first, customers trust the transaction as they are assured that their biometric information cannot be stolen, and no transaction can be done without their presence, and second, it does away with cash altogether.

Agrarian stress

Lack of information that can be churned out by historical data is a key factor that needs to be addressed immediately in agriculture. The government should focus on better prediction of ground level factors such as demand for a crop in future, regional weather conditions at each stage of the crop growth, surplus production, in case many farmers are growing the same crop, and range of prices at which the crop would sell.

However, due to global warming, weather predictions may get affected and the government should be prepared to deal with adverse situations by providing better compensation to farmers. Optimisation of farm output through advanced devices that can be shared by farmers, and enhancing productivity in unwarranted weather conditions through research should be prioritised.


There have been increasing incidences of massive financial frauds, which pose a serious risk to financial institutions. Blockchain can be used by banks and NBFCs to root out the risk and identify potentially risky transactions or NPAs by tracking entire financial history of their client.

A distributed ledger keeps track of accounting changes and allows one to reach the origin point of risky assets, which the government can use to address risk. Blockchain acts as an instrument of trust and needs to be leveraged soon to assure citizens about the safety of their money. It solves the risk of fraud transactions and helps curb black money by identifying and keeping track of the original sources of any currency transaction.

Sustainable development

While we are a developing nation, the growth would mean little if it is not sustainable. The government needs to encourage industries to lower their emissions and be more socially responsible by providing incentives such as tax rebates and other incentives.

Industries that are working towards R&D for a sustainable way of life, such as solar and electric vehicles, need to be encouraged and provided with tools, time and money to take this further and ensure responsible development. Priority should be to incorporate electric vehicles in public transport and encourage in-house production by leveraging Make in India.

(The writer is an EPGP student at IIM Bangalore.)