The CBI has booked billionaire diamond trader Nirav Modi, his brother, wife and an associate for allegedly cheating PNB and other banks of around Rs 280 crore. This was after the $1.8 billion (Rs 11,000 crore) fraud was detected at one of the Mumbai branches of PNB recently.
Analysts fear that the PNB fraud may have a catastrophic impact on couple of other banks and could even trigger a financial crisis akin to Lehman brothers in the US in 2008. While PNB did not name the other lenders, Union Bank of India, Allahabad Bank and Axis Bank are said to have offered credit based on letters of undertaking (LOUs) issued by PNB, reported PTI. An LOU is a letter of comfort issued by one bank to branches of other banks, based on which foreign branches offer credit to buyers.
Jaikishan J Parmar, Research Analyst, Angel Broking told IANS that it was not clear whether PNB had made any provision in its books for towards this fraud.
“Some other banks in addition to PNB might be impacted as they too have given loans to these clients abroad,” he said.
PNB has suspended 10 officers over the scam besides referring the matter to CBI for investigation. Nirav Modi was part of the CEO Meeting with Prime Minister Narendra Modi on 23 January, in Davos, where the latter had famously claimed that 600 crore people in voted him to power in 2014.
The PTI report also said that three other jewellers, Gitanjali, Ginni and Nakshatra were under the scanner with the CBI and ED looking at their arrangements with various banks and end use of money. In the complaint, PNB had named three diamond firms — Diamonds R Us, Solar Exports and Stellar Diamonds — saying they had approached it on January 16 with a request for buyers’ credit for making payment to overseas suppliers.
The bank sought 100 percent cash margins for issuing LoUs for raising buyers’ credit, which was contested by the firms, saying they had availed of the facility from as early as 2010.
Nirav Modi, his wife Ami, brother Nishal and Mehul Choksi are partners in Diamonds R US, Solar Exports and Stellar Diamonds, which has shops in foreign locations such as Hong Kong, Dubai, and New York.
Nirav Modi’s younger brother Neeshal Modi is married to Mukesh Ambani’s niece Isheta Salgaocar. Mukesh Ambani had hosted a star-studded pre-wedding bash for the couple at his Mumbai home in 2016.
According to Forbes magazine, Nirav Modi’s wealth was reported to be at $ 1.73 billion as on 15 February this year. “Modi grew up in Belgium, dropped out of Wharton and moved to India where he got trained in the diamond trade under his uncle. He went on to launch his own Nirav Modi brand with 16 stores in locations such as Delhi, Mumbai, New York, Hong Kong, London and Macau. Indian-born diamond jewellery designer Nirav Modi is the founder of the $2.3 billion (revenues) Firestar Diamond,” writes Forbes magazine about him.
The 48-year-old billionaire diamond merchant was ranked 85 in the Forbes’ list of the richest Indians in 2017. Nirav Modi had roped in Priyanka Chopra to be the global ambassador for the Nirav Modi brand last year. He left India even before the PNB could file an FIR giving rise to suspicion that his links with powerful people may have helped him escape.