In a major relief for highway contractors, India on Monday got its first-ever Surety Bond Insurance for Infrastructure products.
The product which would bring down the dependence of infra developers on bank guarantee, was launched by road, transport and highway minister, Nitin Gadkari.
The Union minister thanked Bajaj Allianz General Insurance for taking this “great initiative by launching this important product.” Suggesting that India is well on its path to becoming a $5 trillion economy, Gadkari said that it is important that infrastructure projects are executed at a faster speed. “Infrastructure, and notably roads, are vital to the economic and social growth of our country,” he noted.
Gadkari took a dig at undue delay in clearance of the product at the regulators’ end saying that they should not take years to approve a small innovative scheme. The IRDAI took three years to clear the product even after a lot of persuasion from the ministry, he said.
“I always tell people that I like those who can get the things done. “Even I like people who can take the wrong decisions but I dislike people who don’t want to take the decisions,” Gadkari added.
Surety Bond Insurance will act as a security arrangement for infrastructure projects and insulate the contractor as well as the principal. The product will cater to the requirements of a diversified group of contractors, many of whom are operating in today’s increasingly volatile environment.
The product is a risk transfer tool for the principal and shields the principal from the losses that may arise in case the contractor fails to perform their contractual obligation. It offers the principal a contract of guarantee that contractual terms and other business deals will be concluded in accordance with the mutually agreed terms.
In case the contractor doesn’t fulfil the contractual terms, the principal can raise a claim on the surety bond and recover the losses they have incurred. Unlike a bank guarantee, the Surety Bond Insurance does not require large collateral from the contractor thus freeing up significant funds for the contractor, which they can utilise for the growth of the business.
The launch of the new surety bond product will ensure the availability of both liquidity and capacity and would provide a boost to the sector. We are confident that expanding our road network will lead to more prosperity, increased employment opportunities, and increased social connectivity. Surety Bond Insurance is the right step in this direction, the minister said at the launch event.
