Surety bonds must complement bank guarantee: Irdai's Debasish Panda

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With around Rs 100 crore infrastructure spending projected in the next five years in India, surety bonds must complement bank guarantees, Insurance and Regulatory Authority of India (Irdai) chairman Debasish Panda said.

According to Irdai norms, a surety bond is a contract to perform the promise, or discharge the liability, of a third person in case of his default. It is a tripartite contract among the principal debtor, creditor and the 'surety' or 'insurance company', which provides the performance guarantee.

"India is expected to spend approximately Rs 100 lakh crore on infrastructure through the National Infrastructure Pipeline in the next five years. This requires bank guarantees of approximately Rs 90 lakh crore in the next five years, which banks currently do not have the capacity for," Panda said at an interaction with stakeholders.

The first-ever surety bond insurance for infrastructure was launched in December 2022. Panda underlined several guidelines issued by the regulator, such as removing restrictions on business to be underwritten, relaxing solvency margin requirements, allowing insurance for commercial and contractual surety, and removing the limit of guarantee in order to boost the business of surety bonds insurance.

With such a large market potential, Panda said all the stakeholders should come together and reap the rich potential that this segment offers.

He also said that the current regulatory framework presents the general insurance industry with a unique opportunity to diversify their portfolio and play an important role in nation-building.