Nitin Gadkari, union minister for Road Transport & Highways
`After discussing several challenging issues that are making Surety Bond a complete non-starter, minister has suggested to the IRDA that it should develop some model product having all the basic features that can be given to the insurers for its launch. The insurers can further improvise the product according their capacity and reinsurance support,’’ said a CEO of a general insurance company, who had attended the meeting adding that reinsurance support will be a key in developing the product
New Delhi:
Nitin Gadkari, union minister for Road Transport & Highways (MORTH), in a bid to break the deadlock over Surety Bonds, has asked IRDA to develop first specimen product on Surety Bonds with the consultation of general insurers, that can be used by them to start with.
For the first time, Gadkari on Wednesday had met some of the CEOs of general insurance companies along SN Rajeswari, member, ( Distribution and acting in charge of Non-life) in New Delhi to fix some of legal and technical hitches that are preventing the general insurers from launching Surety Bonds despite all macro rules and regulations as prepared by the government of India and IRDAI are in place since April 1.
“After discussing several challenging issues that is making Surety Bond a complete non-starter, minister has suggested to the IRDA that after taking suggestion from the insurers, it should design a model product having all the basic features that can be given to them for its launch. The insurers can further improvise the product according their capacity and on the basis of reinsurance support,’’ said a CEO of a general insurance company, who had attended the meeting adding that reinsurance support will be a key in developing the product.
The issue of changes in Indian Contract Act and Insolvency and Bankruptcy Code (IBC) as wanted by the general insurers .so that surety bonds can be at par with bank guarantees when it comes to recourse available to them in case of a default, are also being looked into, but the launch of Surety Bonds should not completely wait for that, he said.
Among general insurers Anjan Dey, CMD, Oriental Insurance Company, Prakash Chandra Kandpal, MD & CEO of SBI General, Ritesh Kumar, MD & CEO,HDFC Ergo had attended the meeting.
To support for the implementation of large scale project finance, particularly in the area road projects of National Highway Authority of India(NHAI), finance minister Nirmala Sitharaman, in her Union Budget 2022-23 had said that bidders for government projects could supply surety bonds instead of bank guarantees, which are much more expensive thus improving the viability of their bid.
After the Union Budget, the IRDAI had come out with the detailed norms on the issuance of surety bonds by the general insurers.
National Highways Authority of India (NHAI) member Manoj Kumar had said a huge market is available for surety bonds in the country and now, the onus is on the insurance fraternity to come out with products quickly.
“A huge market is available for surety bonds in-country and now the onus is on the insurance fraternity to come out with products quickly. We have already initiated at authority level discussions with the insurance agencies and companies,” he said.
The member (project) noted that it is important for the industry to come out with the right kind of insurance products.
He had pointed out that three years ago, the country had 6-7 players who were doing public-private partnership (PPP) and hybrid annuity model (HAM) projects.
“Today, in the current financial year, we have 25 players. We are now awarding nearly 50 per cent contracts to new players, which in turn has resulted in competitive bids and faster constructions,” Kumar said.
He, however, added that it poses another challenge as new players often find it difficult to get bank guarantees and that’s where the roles of surety bonds come in.
Surety bonds are different from corporate bonds and financial guarantees.
While surety bonds refer to the performance or delivery obligation to complete the insured project, the corporate bonds refer to financial obligation to repay the debts or loans.