Minister of Road Transport and Highways, Nitin Gadkari launched the country’s first surety bond insurance product on Monday, reducing infrastructure developers’ dependent on bank guarantees.
Nitin Gadkari said “India is well on its path to becoming a $ 5 trillion economy and achieving the dream of Prime Minister, Narendra Modi ; insurance will play an important role in this growth. To realize Modi’s dream, 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. With this new instrument of Surety Bonds, the availability of both liquidity and capacity will definitely be boosted; such products stand to strengthen 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, I am glad to see that Bajaj Allianz General Insurance has taken the great initiative by launching this important product.”
Surety Bond Insurance will serve as a security arrangement for infrastructure projects, protecting both the contractor and 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. Surety Bond Insurance is a risk transfer tool that protects the Principal from losses that may occur if the contractor fails to perform their contractual obligations.
The product gives the principal a contract of guarantee that contractual terms and other business deals will be concluded in accordance with the mutually agreed terms. If the contractor fails to meet the contractual terms, the Principal can file a claim against the surety bond to recover their losses. Unlike a bank guarantee, Surety Bond Insurance does not require large collateral from the contractor, freeing up significant funds for the contractor to use for business growth. The product will also help in reducing the contractors’ debts to a large extent thus addressing their financial worries. The product will help the country’s upcoming infrastructure projects grow.
The product grants the principal a guarantee that the terms of any contracts and other business agreements will be fulfilled in accordance with the terms mutually agreed upon.
The principal can file a claim against the surety bond and recover their losses if the contractor doesn’t uphold the terms of the contract.