NHAI explores insurance surety bonds to accelerate infrastructure growth

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National Highways Authority of India (NHAI) convened a high-level meeting to deliberate on different aspects to explore possibilities and remove operational constraints for wider adoption of surety bonds in place of bank guarantees. "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)," the ministry of road transport & highways said. NHAI has urged insurance companies and contractors to consider insurance surety bonds as an additional means of submitting bid security and performance security deposit.

These bonds, once issued, are anticipated to be cost-effective and provide substantial security for NHAI projects. Insurance surety bonds are financial instruments where insurance companies act as 'Surety,' offering a financial guarantee that contractors will fulfill their obligations as per the agreed-upon terms. The Ministry of Finance, Government of India, has placed e-BGs and Insurance Surety Bonds on equal footing with traditional BGs for all government procurements.

Globally, the surety insurance market boasts a size of approximately $29.5 billion, but India's participation in this market has been limited until now. India is expected to become the world’s third largest construction market. Indian Infrastructure Sector alone would require an estimated Rs.

2.70 lakh crore of bank guarantees in year 2023, which is expected to grow by 6 to 8 percent year on year basis. Surety bonds act as a viable option to bank guarantees and offer longer maturity terms than the traditional banking products. They are one of the most cost-effective ways to finance contract security