Fugitive billionaire jeweller Nirav Modi, wanted by Indian authorities over a $US2 billion ($A2.8 billion) loan fraud has been remanded in custody after appearing before a British court.

India asked Britain last August to extradite 48-year-old Modi, whose diamonds have sparkled on famous Hollywood stars, after he was accused of massive bank fraud, charges he denies.

The diamond magnate was arrested in the Holborn area of central London on Tuesday after he went into a bank to open an account and a member of staff contacted police.

He appeared at London's Westminster Magistrates Court on Wednesday, accused by India of two charges of conspiracy to fraud and conspiracy to conceal criminal property.

His lawyer, George Hepburne Scott, said his client would deny the charges, which he believes are politically motivated.

Despite offering to put up STG 500,000 ($A928,300) security, he was told he would not be given bail.

District Judge Marie Mallon said there were substantial grounds to believe he might not surrender to bail and no conditions would satisfy her to grant his release.

Modi was remanded in custody until his next appearance at the same court on March 29.

Modi left the country before India's biggest banking fraud at state-run Punjab National Bank came to light early last year.

PNB, India's second-largest state-run bank, said in 2018 that two jewellery groups headed by Modi and his uncle Mehul Choksi had defrauded it by raising credit from other Indian banks using fraudulent guarantees issued by rogue staff of the bank. Modi and Choksi have both denied wrongdoing.