Nirav Modi Scam Explained – How PNB Lost 14000 Crores

adminMay 5, 2024

Simplifying Nirav Modi Scam and PNB Scam: If you search Nirav Modi on Google, you will find many pictures of him with the Glamorous Actress of Bollywood and Hollywood. However, behind those flashy photos is a huge scammer. The Nirav Modi scam or the Punjab National Bank (PNB) scam is worth ₹11,356.84 crores and is termed as the biggest scam in the history of Indian banking.

Today we will take a look at what really happened in the PNB scam or the Nirav Modi scam, who was behind it and how the diamond tycoon was able to siphon billions of dollars from the country.

Who is Nirav Modi?

Nirav Modi is a luxury diamond jeweler and designer. The Diamond King of India featured in the list. He also ranked 57th on the 2017 Forbes list of billionaires. Nirav Modi started his diamond business in Gujurat but it was taken over in Belgium.

Modi attended the Wharton School at the University of Pennsylvania, but dropped out at age 19 to join his father in his uncle Mehul Choksi’s business. Mehul Choksi was the head of the Gitanjali group. The group owns 4000 jewelery retail stores across the country.

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Under him, Modi learned the trade tricks of the diamond industry and eventually founded ‘Firestar’, a diamond sourcing and trading company, in 1999. The success of his business soon led Modi to acquire other jewelery businesses. These included Frederick Goldman in 2005, Sandberg & Sikorski and A.Jaffe in the US in 2007.

In 2010, he started his eponymous diamond store and eventually opened 16 stores in locations including Delhi, Mumbai, New York, Hong Kong, London and Macau. Modi’s popularity grew after he designed the “Golconda Lotus Necklace” with an aged 12-carat pear-shaped diamond in 2010, and after his Riviere of Perfection, featuring 36 flawless white diamonds totaling 88.88 carats, was sold at Sotheby’s. I lost.

The launch of his New York store also included Donald Trump., actress Naomi Watts, and model Coco Rocha. This store sold luxury brands such as Hermes, Chanel, Prada, and Gucci. It cost $1.5 million for one year just to lease the store.

At the height of his successful business career, he was known as one of India’s diamond kings and his jewelery was worn by Kate Winslet at the Oscars. That was it until news of the scam broke.

What happened? Is Nirav Modi committing fraud?

The scam, which occurred in 2018, dates back to 2011. To curb the scam, Nirav Modi announced LOU (business letter). LoUs act as bank guarantees to enable customers to obtain short-term loans. These loans can be procured from foreign branches of Indian banks established abroad.

Since Nirav Modi imported diamonds from foreign countries, he had to deal with foreign currency. For this, he had to approach foreign branches of Indian banks to get loans at cheaper rates. But what collateral does he have here? This is where LOU steps in. Nirav Modi approached PNB for LOUs used as collateral for these short-term loans.

However, these LOUs are provided only if the customer holds collateral in the domestic bank issuing the LOU. However, PNB ignored these demands and gave LOU on Modi’s assurances.

(Nirav Modi in conversation with Prince Charles)

Since these loans were short-term in maturity, Modi was asked to repay the loans from foreign branches. But this is where Modi extended the fraud. He simply took another LOU of a higher amount from Punjab National Bank. This was used to repay existing loans and any additional money was reinvested. Talk about the mechanics of a Ponzi scheme. By 2018, Nirav Modi had received 1,212 more LOUs.

But his plan was working! Modi grew a business in five years that would otherwise have taken 20 years. But how did he plan to repay the debt? Modi eventually planned to take his “successful” company public and sell his securities at a premium. These funds will be used to pay off billions of dollars in debt.

But unfortunately, in 2018, when employees of his companies (Diamonds R Us, SolarExports and Stellar Diamonds) once again approached PNB for LOU, the bank officials demanded 100% cash margin. Nirav Modi’s company challenged this requirement. They claimed that they had previously availed LOU without collateral.

This led PNB officials to finally scrutinize their accounts and for the first time discover irregularities of Rs. An FIR was immediately filed with the CBI for issuance of fraudulent LOU worth ₹280.7 million. By May 18, 2018, fraud had skyrocketed as authorities investigated further. Over Rs 14,000 crore.

The fallout after news of the scam broke?

The aftermath of the fraud was unprecedented. Because citizens couldn’t handle the fact that entrepreneurs could simply waste billions of dollars. This came from the Vijay Mallya scandal outpost.

However, by the time this news broke, Nirav Modi had already left the country along with his wife, younger brother and Mehul Chowksi. The biggest impact of the fraud was on the Indian banking sector. Even though the loan is from another country, it is as if the loan was taken from an Indian bank. Ultimately, the government had to intervene once again to save the banking sector.

Several PNB officials were arrested. A top PNB official claimed that the fraud occurred because PNB had few employees. They also said irregularities in the bank’s SWIFT system made the fraud possible. But this pretense was unbuyable because billions of dollars could not have simply disappeared from the bank without the intervention of senior bank officials.

(PNB Fraud Whistleblower –Hari Prasad)

The most interesting twist in the case occurred when news broke about a whistleblowing attempt that had occurred. This attempt was made by jeweler Hari Prasad. He sent a detailed letter to the Prime Minister’s Office about the fraud that took place in 2016, highlighting PNB and urging action. The letter has been approved by the PMO and transferred to the Registrar of Companies.

The RoC simply threw out the case. This gave the scam a political turn. The opposition party accused the Modi government of being complicit. On the other hand, the Modi government criticized the Congress when the initial LOU was issued when it came to power.