Over the past decade, Nirav Modi has become "India's most celebrated jewellery baron", says the Financial Times. His creations are favoured by Hollywood and Bollywood stars and the super-rich. "He was among an elite group of Indian business leaders who joined prime minister Narendra Modi [no relation] at last month's World Economic Forum in Davos." So it was a huge shock to India's establishment when his name was dragged into allegations of a fraud totalling up to $1.8bn at the Punjab National Bank (PNB) shortly after hisDavos appearance.
Modi has yet to be charged and last month denied any wrongdoing, but investigators allege it was a family affair embroiling his wife, brother, uncle and "three firms in which they were partners". They claim that Modi and his uncle, Mehul Choksi, colluded with bent bank officials to create fake letters of undertaking (LoUs) to obtain unauthorised international loans (Choksi has also denied any wrongdoing, as have the officials allegedly implicated).
It's a serious blow to Modi's business although not directly implicated, his flagship gem-trading business, Firestar Diamond, has filed for bankruptcy in New York. It is also turning into an incipient banking crisis, says The Times of India. The plunge in PNB's shares, down by nearly 25% at one point, reflects concern about the health of India's second-largest state-run bank. But the fear of contagion "dozens of lenders have provided loans against the LoUs issued by PNB" sent the whole sector reeling. More broadly, worries about lax controls and high rates of corporate default have led many to wonder what other nasties may be lurking under the bonnets of Indian banks.
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Asia's first luxury brand
Two years ago, when he was still riding high, Modi, 48, outlined plans to build "Asia's first luxury brand" named Nirav Modi which would be up there with "Cartier and Tiffany". The ambition seemed lofty, but any backer might have reasoned that, as the scion of a family of gem experts, he was steeped in the business. Brought up in Antwerp the European centre of the diamond trade to an Indian migr family, Modi didn't plan to join the business. But after dropping out of his Japanese and finance studies at Wharton in the US, he was sent to Mumbai to learn the ropes from his maternal uncle, Choksi. In 1999, he set up his own firm, Firestar, to source rare diamonds quickly acquiring a string of international companies that got him into contract manufacturing.
The "soft-spoken and unassuming" Modi took advantage of the financial crisis to buy "rare diamonds at bargain prices", says The Times of India. He marked the launch of his jewellery design house with a necklace featuring a flawless 12-carat Golconda diamond, which Christie's put on the front cover of its catalogue. At his peak, Forbes put Modi's net wealth at $1.6bn.
Modi, believed to be in New York, has vigorously denied the allegations, maintaining that the "media frenzy" has "destroyed my brand" and restricted his ability to repay his debts, notes the BBC. The ruling BJP party, which came to power on an anti-corruption ticket, has distanced itself from the situation. But that hasn't stopped opposition politicians are making hay from the situation. They are now drawing parallels with another prominent businessman, Kingfisher's Vijay Mallya, who skipped the country in similar circumstances in 2016 (see page 3).
