Insurance News

Take advantage of surety bonds, Irdai Chairman to stakeholders in infra space


NEW DELHI: Insurance sector regulator Debasish Panda on Tuesday stressed on the need to make use of surety bonds to complement bank guarantees and support the country’s mega infrastructure building activity.

“The time for only organic growth is over, and we need to look at other sources of finance like surety bonds to boost growth,” the Insurance Regulatory and Development Authority of India chairman said at a CII roundtable. The current regulatory framework presented the general insurance industry with a unique opportunity to diversify its portfolio and play an important role in nation-building, he said.

Surety bond insurance is a risk transfer tool that shields the principal in a business transaction from the losses that may arise in case the contractor fails to perform the contractual obligation.

Unlike a bank guarantee, surety bond insurance does not require large collateral from the contractor, thus freeing up significant funds which the contractor can utilise for the growth of the business. India is expected to spend around `100 lakh crore on infrastructure through the National Infrastructure Pipeline in the next five years, he noted.

“This requires bank guarantees of approximately `90 lakh crore in the next five years, which banks currently do not have capacity for.

This is where surety bonds need to step in to complement bank guarantees,” he added.Panda noted that the regulator has removed restrictions on business to be underwritten, relaxed solvency margin requirements with the aim of giving a boost to the business of surety insurance.


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