NHAI explores Surety Bonds over Bank Guarantees for project security

28 Aug 2023 CW Team

The National Highways Authority of India (NHAI) has organised a high-level meeting aimed at discussing various facets to uncover opportunities and eliminate operational constraints to encourage broader acceptance of surety bonds as substitutes for bank guarantees.

According to the Ministry of Road Transport & Highways, the collaborative brainstorming session with stakeholders encompassed diverse perspectives, aiming to explore avenues and remove practical barriers to foster wider adoption of surety bonds in lieu of traditional bank guarantees (BGs).

NHAI has appealed to insurance companies and contractors to consider adopting insurance surety bonds as an additional method for presenting bid security and performance guarantees. These bonds, once issued, are expected to offer cost-efficiency while ensuring substantial security for NHAI projects.

Insurance surety bonds function as financial instruments where insurance firms act as 'Surety,' delivering a financial assurance that contractors will fulfil their obligations as per the mutually agreed terms. The Ministry of Finance, government of India, has equated electronic BGs and Insurance Surety Bonds with conventional BGs for all government procurement processes.

Globally, the surety insurance market commands a size of approximately $29.5 billion, but India's involvement in this market has been limited thus far. Anticipated to become the world’s third-largest construction market, India's Infrastructure Sector alone is projected to necessitate about Rs 2.70 trillion worth of bank guarantees in 2023, with an expected annual growth rate of 6 to 8 per cent.

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