The National Highways Authority of India (NHAI) organised a high-level gathering aimed at exploring diverse subjects and devising strategies to address obstacles hindering the broader acceptance of surety bonds as a substitute for bank guarantees. The meeting, spearheaded by Rajendra Kumar, NHAI’s Member (Finance), along with Nilesh Sathe, an NHAI Expert/Advisor, and Mandakini Balodhi, Director (Insurance) from the Department of Financial Services (DFS), saw the participation of representatives from various insurance companies, contractors, industry experts, and senior NHAI officials.
According to the ministry of road transport and highways, “the brainstorming session with stakeholders deliberated on different aspects to explore possibilities and remove operational constraints for wider adoption of Surety Bonds in place of Bank Guarantees (BGs).”
NHAI extended an earnest call to insurance companies and contractors, urging them to assess the viability of adopting Insurance Surety Bonds as an alternative mechanism for submitting Bid Security and Performance Security Deposits. Envisioned as a more economical choice, these bonds, once instituted, are anticipated to offer robust security for NHAI projects.
Insurance Surety Bonds
Insurance Surety Bonds serve as financial instruments wherein insurance companies assume the role of ‘Surety,’ furnishing a financial assurance that contractors will dutifully meet their commitments as per mutually agreed terms. Notably, the Ministry of Finance, under the aegis of the Government of India, has granted equivalence status to e-BGs and Insurance Surety Bonds, aligning them with BGs for all government procurement processes. It’s noteworthy that the global Surety insurance market boasts a substantial size of approximately $29.5 billion, with India poised to join its ranks.
India’s construction market is poised to ascend to the third-largest position globally. Anticipated to reach this zenith, the Indian Infrastructure Sector is predicted to necessitate a staggering Rs 2.70 lakh crore in bank guarantees for the year 2023 alone, with a projected annual growth rate of 6 to 8 per cent. Within this context, Surety Bonds emerge as a promising alternative to traditional Bank Guarantees, offering extended maturity terms and positioning themselves as a financially viable option. This transition could potentially release a colossal capital sum of Rs 50,000 crore, alleviating the capital burden within the Infrastructure Sector.
Amidst India’s resolute endeavor to burgeon into a $5 trillion economy, instruments such as Insurance Surety Bonds are poised to invigorate liquidity availability and enhance the capacity of bidders and concessionaires. This paradigm shift is poised to fortify the development of National Highway Infrastructure, cascading into multifaceted positive ramifications for the broader Indian economy.