Offshore Banking and Open Ship Registries in the Andaman & Nicobar and Lakshadweep Islands: A Feasibility Study

● Capital. Domestic ship loans cost 12–14% against 5–6% from international lenders (India Seatrade News).

● Tax and duty. A 5% IGST on ship acquisition adds about USD 2.5 million upfront to a USD 50 million vessel. The GST credit restrictions vary by state. India's tonnage-tax rates are among the highest of any tonnage-tax country (RIS PB-121).

● Compliance and crewing. Operating under the Indian flag costs 16–20% more than under open registries.

The result is a large Indian-controlled fleet flying other flags. Yet there is no current official count of it getting published. That gap is itself a finding: India cannot easily see its own controlled tonnage.

1.2 The proposal under study

The proposal combines 3 instruments, all anchored in India's island territories:

● Offshore banking. Offshore banking units in the islands, raising foreign-currency funds and lending at international rates for ship acquisition and Indian shipbuilding.

● An open or second register. A ship register linked to the islands, competitive with Panama, Liberia, the Marshall Islands and Singapore on cost and speed.

● Fractional, locked-in equity. Each ship's ownership is split into 1,000 shares. These are auctioned to offshore banks and FDI investors. Lock in period for holders is five years, until the first special survey, so that capital remains in place through the asset's riskiest early period.

1.3 Research questions

1. Is the proposal legally possible within India's constitutional and international obligations?

2. What can India learn from existing offshore centres and second registers?

3. How would the 1,000-share auction and five-year lock-in work, and what would it do to the cost of capital?

4. What are the main risks: money laundering, tax-haven labelling, substandard shipping, national security and island ecology? How can each be contained?

5. What sequence of steps would make it real?

1.4 Research questions

This paper is a qualitative policy feasibility study, drawing on ten source documents supplied with the brief: OECD Maritime Transport Committee papers (1998, 2002, 2003), an ITF roundtable report (2020), a CCSI paper on registry due diligence (2021), academic papers on open registries and offshore banking, and Indian studies of offshore banking units. These are updated with Indian legislation and statistics current to October 2026. The financial illustrations in Section 6 rest on stated assumptions rather than market quotes.

2. Conceptual foundations

2. Offshore banking and offshore financial centres

Offshore banking is "the cross-border intermediation of funds and provision of services by banks residing in OFCs to non-residents" (Agarwal 2020, p. 3713, following Errico & Musalem, IMF WP/99/5). The typical exemptions are:

● no reserve requirements on deposits;

● favourable taxation;

● no interest-rate or exchange controls;

● lighter liquidity and capital rules.

Three tiers of offshore centre exist (Agarwal 2020, pp. 3713–3714):

● Primary centres: London, US International Banking Facilities, the Japan Offshore Market.

● Secondary centres: Hong Kong, Singapore's Asian Currency Units, Bahrain, Labuan.

● Booking centres: the Caribbean tax havens.

An Indian island centre should aim for the second tier, as a regulated regional hub, rather than the third.

The literature supports the island angle: "Offshore finance is one of the few industries, along with tourism, in which geographically remote island nations can competitively engage" (Desai 2017, p. 15). Shipping companies, moreover, are named among the core corporate clients of offshore banks (p. 17).

The same literature also warns that offshore banks tend to be more profitable and more liquid but less solvent: in the IMF sample, 43% had equity-to-assets ratios below 7% (Agarwal 2020, p. 3716).

The Asian crisis cases are directly relevant:

● Thailand. The Bangkok International Banking Facilities grew about 38% a year to USD 32 billion by 1996, then channelled unhedged foreign currency into the domestic economy ("out-in" lending). 

● Malaysia. Labuan's 52 offshore banks held 34% of Malaysia's short-term external liabilities in 1995 (pp. 3718–3719).

The lesson is to ring-fence offshore funding and to supervise it on a consolidated basis with the parent bank.

2.2 Open registries and flags of convenience

UNCLOS Article 91 requires a "genuine link" between a ship and its flag state but never defines it. That silence "has led to the creation of a number of open registers, which will issue flag registration on the payment of a fee", and in those registers the link is reduced to "one of client and service provider" (OECD DSTI/DOT(2001)3, p. 29). The Rochdale Committee (1970) set out six features of an open register (OECD 2002, p. 71, fn. 23):

1. Non-citizens may own and control ships.

2. Ships can register and leave the register easily.

3. Shipping income is taxed lightly or not at all.

4. The flag state is a small power.

5. Crews of any nationality may be hired.

6. The state lacks the machinery to impose regulation.

The OECD adds that the sixth "is no longer universally valid".

Owners choose flags mainly on manning and taxation, not on registration rules (OECD 2002, p. 40, para. 165). Open registers held 31% of world tonnage in 1980 and 48% by 1999 (p. 40), and UNCTAD's 2025 Review puts Liberia (17.4%), Panama (15.2%) and the Marshall Islands (12.5%) at 45.1% of world deadweight tonnage combined (Maritime Executive).

The OECD also quantified the price of cutting corners. For a 40,000 dwt product tanker, daily running costs were:

Practice level	Daily operating cost (USD)
Good practice	4,850
Common practice	4,250
Standard	3,750
Floor	3,100

Across the fleet, meeting minimum standards cost about USD 4 billion a year, which is also the advantage available to an owner who ignores them (OECD 2002, pp. 55–56). A credible Indian register must therefore compete on cost without competing on safety.

2.3 Second (international) registers

Traditional maritime states answered flagging-out with second registers. These keep the national flag but allow foreign crews and favourable tax. The principal examples are:

● the Norwegian International Ship Register (NIS, 1987);

● the Danish International Ship Register (DIS, 1988);

● the German and French international registers;

● the Isle of Man under the Red Ensign Group.

The NIS lets owners "reap the financial savings that would otherwise be available from transferring their vessels to open registers, without abandoning the national flag" (OECD 2002, p. 41). It places no nationality limit on owners, although ships more than 40% foreign-owned must be managed by a Norwegian company or have a Norwegian representative (p. 95). NIS ships may not trade between Norwegian ports.

The ITF roundtable describes second registers and tonnage taxes as the developed world's two responses to open registries (ITF 2020, p. 14). Nistor and Grigoruţ similarly conclude that second registers must offer "fiscal, economic and even political incentives" together with "adequate administrative and legal framework coupled with effective enforcement powers" (p. 4).

That is the right model for India: an Indian international register, not a pure flag of convenience.

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