Firestar Diamond files for bankruptcy in US

Firestar Diamond, a firm owned by Nirav Modi ( pictured), has filed for bankruptcy in a New York court, as investigators stepped up their investigation into the fraud case.

The US bankruptcy filing by Firestar Diamond comes as investigations by Indian authorities into the fraud case are becoming more aggressive, including a raid last week of Modi’s former law firm that lawyers described as unprecedented. Modi, along with his uncle Mehul Choksi, owner of Gitanjali Gems, is suspected to have colluded with bank officials at 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 20month low.

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 staterun lenders to comb through their bad loans of more than ~500 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 shortterm 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 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.”

Firestar Diamond listed $50 million to $100 million in assets and liabilities and noted it had 50 to 99 creditors, according to a court filing in the Southern District Of New York late on Monday.