How surety bonds can be made at par with bank guarantees— explained
Insolvency and Bankruptcy Code (IBC), PTI news reported. While presenting the Union Budget 2022-23, Finance Minister Nirmala Sitharaman said that the use of surety bonds as a substitute for bank guarantees will be made acceptable in government procurement. Surety bonds are third-party guarantees issued by the insurance companies on behalf of the applicant (i.e.
on behalf of whom the guarantee is to be provided) “Surety Bonds are issued to Beneficiaries and Authorities (i.e. corporations that accept the guarantee). Fundamentally, it is similar to any Non-Fund limits provided by banks to provide Bank Guarantees and LCs," said Sanjay Kedia, CEO and Country Head, Marsh India Insurance Brokers.
Last week, IRDAI Chairman, Debasish Pandaurged stakeholders in the infrastructure sector to take advantage of offered surety bonds, which complement bank guarantees needed for large-scale funding. IRDAI Chairman, Debasish Panda had mentioned that India is planning to spend almost ₹100 lakh crore+ on infrastructure in the next 5 years, which will generate a need for bonds worth almost ₹90 lakh crore in the next five years. As per Sanjay Kedia, the current banking setup would urgently need additional support from alternative financing mechanisms to support such a demand for capital of this scale.
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