Recycling of sanctioned vessels at Alang hits roadblock as banks decline letters of credit

“We are not opening letters of credit for sanctioned vessels for fear of coming under sanctions ourselves,” said an official with one of the public sector banks based in Alang, home to the world’s largest stretch of ship breaking beaches. A letter of credit guarantees payment to a seller.

“We have rejected letters of credit for many sanctioned ships. When a ship recycler approaches us for opening letter of credit and submits the ship’s International Maritime Organisation (IMO) number, we immediately check in our system, and our head office will decline the request for LC. So, we are not giving LC,” said a second official with a state-owned bank. “If they don’t get a letter of credit, they will not be able to make payment to the seller of the ship for recycling,” he said. Ships purchased for recycling are typically priced between ₹50 to ₹200 crore, depending on weight.

“It’s a big amount and requires clearances from multiple agencies within a bank. And, in the absence of a letter or credit, the sale/purchase will not go through,” the banker said. Explaining the reasons for refusing to open letters of credit for ‘sanctioned’ vessels, a third banker said, “If they sanction us for dealing with a sanctioned ship, they will ban US dollars for our bank, and our foreign exchange business will collapse. That’s the problem”.

“Our bank is not opening letter of credit for sanctioned ships whatever be the situation because there are Reserve Bank of India policies which have to be followed by all the banks. No bank can violate those policies. Our bank is very clear,” said an official with a private bank in Alang.

“Some five vessels have arrived, but buyers are yet to find the way to make payment from India,” said a ship recycling industry source in Alang. The non-availability of letter of credit from banks to buy ships sold for scrapping is another blow to recyclers in Alang who have been battling a downturn for many years due to lesser number of ships coming for dismantling in the face of a booming freight market, nudging fleet owners to continue running their old ships.

Alang beached 113 ships for recycling in FY25, the lowest in a decade. At its peak some 15 years ago, Alang beached about 400 ships a year for recycling.

It also comes at a time when most of the 131 recyclers in Alang have invested money to upgrade their facilities to comply with the global treaty on green ship recycling that entered into force on June 26 this year. More than 115 recycling yards operating at Alang have secured the Hong Kong Convention (HKC) Statements of Compliance (SoC) from various classification societies – entities that certifies ships for seaworthiness. The remaining yards are in the process of achieving compliance.

“It’s not good for India. Previously, lot of ships came to Alang for recycling; the industry is in trauma now,” said the ship recycling industry source. “Recycling means they are dismantling the ships for scrap. It’s a good thing and is beneficial for India also. Many people will get employment,” the source added.