NEW DELHI, India The $4.5 billion gems and jewelry export industry in India has been experiencing a meltdown over the last few days, leading to an outburst in banking and political circles. This follows a series of investigations set off by government agencies into the companies owned by jeweler and diamond retailer Nirav Modi in relation to an alleged $1.77 billion bank fraud.

Financial transactions by Modi, who has rapidly opened stores worldwide for his brand, and his maternal uncle, Mehul Choksi, chairman of prominent jewelry chain Gitanjali Gems, have unleashed questions around all the bank loans that are a cornerstone of the gems and jewelry industry as a whole.

“The Nirav Modi/Gitanjali Gems incident is of concern to the entire gems and jewelry industry. We strongly condemn any sort of unlawful and illegal actions by any individual, trade or otherwise,” Pramod Kumar Agarwal, chairman of the Gem Jewelry Export Promotion Council, said.

Politicians have seized on the issue over the last three days, with accusations by opposition parties that the government of Prime Minister Narendra Modi (no relation) has been shielding the matter. Nirav Modi left India in the first week of January, followed by his uncle and his wife, and was seen in Davos, Switzerland, at the World Economic Forum, where the Indian prime minister led a delegation of 100 Indian businessmen.

Government officials have denied that the jeweler was part of the official delegation, and have in turn said that the loans issue should have been addressed by the previous government, during which many of the transactions were made.

An Indian television channel has reported that Modi is staying in Manhattan near his Madison Avenue store.

In a letter to Punjab National Bank, Modi finally responded to the allegations. “The matter is being described as India’s largest banking fraud. This is far from the truth,” he said in the letter. “Nirav Modi Group ran a legitimate luxury brand business and the brand had become India’s foremost global luxury brand, standing side by side with some of the biggest jewelry brands in the world. In the anxiety to recover your dues immediately, despite my offer, your actions have destroyed my brand and the business and have now restricted your ability to recover all the dues leaving a trail of unpaid debts. Whatever may be the consequences I may face for my actions, the haste was, in my humble submission, unwarranted,” he wrote.

He wrote that ‘the erroneous liability resulted in a media frenzy led to immediate search and seizure of operations, which has in turn resulted in Firestar International Private Limited and Firestar Diamond International Private Limited effectively ceasing to be going concerns. This has thereby jeopardized our ability to discharge the dues of the group to the banks.

“I urge you once again to be fair, and in the interests of transparency, justice, the banking system and India as a whole, support my efforts to make good all the amounts that are found due by my group to all banks,” he wrote in the letter, while stating that his wife and his uncle were not related to the business, and his brother was not concerned with the operation of the three firms listed.

Since the entire Indian banking system — its integrity, and implementation of regulations — is under question with this alleged fraud, the blame game is reverberating widely. The investigations into the complaint by the state-run Punjab National Bank that the letters of understanding issued by them to other lending institutions were illegal have been compounded by the sheer size of the amount — almost $1.8 billion in fraudulent transactions, as alleged by the bank. In the financial year ending March 31, 2017, the Punjab National Bank’s net worth was $5.9 billion. According to bank officials, the fraudulent process began in 2011, and only came to light last month. In an internal probe, the bank has stated that two of its employees were found to be involved, one of whom has since retired. They are among the three arrests made by the Central Bureau of Investigation last weekend.

“It’s a bane on much more than just the jewelry industry in which the system will have to undergo some major changes, and the systems of lending will have to be reevaluated,” a bank official said, on the condition of anonymity.

The gems and jewelery sector is significant in the Indian economy, contributing around 7 percent of the country’s gross domestic product and 15.71 percent to India’s total merchandise exports. It also employs more than 4.64 million workers, according to the Gem Jewelry Export Promotion Council, which describes the industry as “one of the fastest growing sectors,” which is “extremely export oriented and labor-intensive.” India exports 75 percent of the world’s polished diamonds.

Nirav Modi was one of the few industry figures who pursued global retail growth, opening stores in major cities over the last three years, including the 700-square-foot Madison Avenue store in 2015, and Old Bond Street in London in 2016. His 14 stores include units in Beijing, Hong Kong, Macau, Singapore, Las Vegas, Honolulu, New Delhi and Mumbai.

His company, Firestar International Ltd., has 26 subsidiaries worldwide, including in the U.S. and U.K.

“He brought Indian jewelry to a new level of recognition globally,” said a Mumbai based jeweler who asked not to be identified. Modi’s designs were also key to his retail plan, gaining public attention before he opened his stores: His Golconda Lotus Necklace was auctioned at Christie’s, Hong Kong for about $3.56 million in 2010, and another diamond necklace for $5.1 million at Sothebys in Hong Kong in 2012. He was listed as No. 85 on India’s billionaire list as of April 2017 (and among the top 1,500 billionaires worldwide), with a net worth of $1.8 billion.

Hollywood celebrities and stars including Kate Winslet, Naomi Watts and numerous others have worn his creations and actress Priyanka Chopra is his global brand ambassador.

Investigations are expected to continue, tracing the international trajectory of the brand, and analysts are projecting changes in the way business will function in India. “This is certainly one of the largest frauds in Indian banking history,” observed a banker who requested anonymity.  “It is going to set into motion tighter regulations and processes across the board.”