Tata AIG General Insurance has rolled out surety insurance bonds to bolster the Indian government's endeavours in infrastructure development. These bonds serve as an alternative to conventional bank guarantees, facilitating contractors' more efficient participation in the sector. With the government allotting 3.3% of the GDP for the fiscal year 2024 towards infrastructure, there's substantial potential for insurance firms providing surety bonds.
The introduction of these bonds aims to assist contractors in unlocking capital, augmenting their bidding capabilities, and overcoming liquidity and capital constraints. Deepak Kumar, Senior EVP, Tata AIG General Insurance affirmed the company's commitment to addressing the pressing liquidity and capital issues prevalent in the infrastructure domain. He expressed confidence that this product would not only streamline project execution but also contribute to India's ambition of achieving a $5 trillion economy.
Surety bonds safeguard project owners from losses arising due to contractor non-performance, failure to fulfil obligations, or breach of contract terms. Tata AIG's product portfolio encompasses various types of contract bonds, including bid bonds, performance bonds, advance payment bonds, and retention money bonds, all in compliance with IRDAI guidelines. These bonds ensure that the principal party fulfils its contractual duties to the obligee. In case of default by the principal, the surety company compensates the obligee for incurred losses.
During the presentation of the Union Budget 2022-23, Finance Minister Nirmala Sitharaman announced plans to recognise surety bonds as substitutes for bank guarantees in government procurement. However, insurers note that the market uptake has been limited due to their exclusion from certain rights enjoyed by other financial creditors in bankruptcy proceedings. (Source: ET)
