Mumbai: Firestar Diamond, a company owned by Mr. Nirav Modi, the billionaire jeweller at the heart of a $2 billion fraud case in India, has filed for bankruptcy in a New York court, as investigators stepped up their investigation into a case that has stunned the country of India, reports Reuters.
Firestar Diamond, which on its website states that its operations span the US, Europe, the Middle East, the Far East and India, blamed liquidity and supply chain challenges. It listed up to $100 million in assets and debt, the court document said.
Mr. Modi, along with his uncle Mr. Mehul Choksi, owner of Gitanjali Gems Ltd, are suspected to have colluded with bank officials at Punjab National Bank (PNB) to obtain unauthorised loans over a six-year period. PNB late on Monday said the amount of those fraudulent transactions could rise by $204 million to nearly $2 billion, sending its shares reeling to a 20-month low. The jewellers and companies linked to them had allegedly colluded with PNB officers to obtain fake bank guarantees to get loans from overseas branches of Indian banks, including Allahabad Bank, Axis Bank and UCO Bank. The scale of the fraud has raised concerns about the potential for similar cases across India’s banking sector. The Finance Ministry on Tuesday set a 15-day deadline for state banks to take action to improve their oversight of operational and technological risks.
The ministry’s Department of Financial Services also ordered state-run lenders to comb through their bad loans of more than 500 million rupees ($7.71 million) for potential fraud. Among the actions lenders must take include identifying current oversight weaknesses and having banks’ boards “assign clear accountability” for implementation and compliance. Analysts said the government directive could hit banks in the short-term if more fraud was detected, though it would benefit the sector in the long-term. “The oversight in the banking system is obviously not good,” said Mr. Yuvraj Choudhary, an analyst at brokerage Anand Rathi. “This could lead to uncovering of more potential scams. We can expect bottom-lines to be hit in the coming quarters.”