IRDAI Chairman calls for stakeholders’ collaboration in infra project financing
Surety bonds are needed to step in to complement bank guarantees that are required to support approx Rs.100 lakh crore spending on infrastructure through the National Infrastructure Pipeline in the next five years, says Debasish Panda, Chairman of Insurance Regulatory and Development Authority of India (IRDAI).
The Rs.100 lakh crore a year for NIP projects requires bank guarantees of approximately Rs.90 lakh crore in the next five years which the Indian banks currently do not have capacity for.
“This is where surety bonds need to step in to complement bank guarantees,” said Panda at a roundtable with stakeholders, which included senior officials from Ministry of Finance, National Highways Authority of India (NHAI), representatives from several insurance companies, the World Bank, other public & private banks, infrastructure companies, reinsurers and insurance brokers.
He underlined, “This is important as India is estimated to be the third largest country with infrastructure activity by 2030.”
With such a large market potential, he exhorted all the stakeholders to come together and reap the rich potential which this segment offers.
He further pointed out that the current regulatory framework presented the general insurance industry a unique opportunity to diversify their portfolio and play an important role in nation building.
IRDAI Chairman said that time for only organic growth is over and we need to look at other sources of finance like surety bonds to boost growth.
He also underlined the guidelines IRDAI has issued since last year on surety bonds, among them the IRDAI (Surety Insurance Contracts) Guidelines, 2022 opened up the sector.
The IRDAI followed this with circulars of January 2023 and May 2023 which removed restrictions on business to be underwritten, relaxed solvency margin requirements, allowed insurance for commercial and contractual surety and removed limit of guarantee with the aim of giving a boost to the business of surety insurance.
The almost three-hour-long discussion, under the auspices of the Confederation of Indian Industry (CII) and The Infravision Foundation (TIF), focused on the financing of infrastructure projects in the country as part of the massive push to the sector by the Government by allocating Rs.10 lakh crore towards it in the Union Budget 2022-23.
The Government has already announced surety bonds, as a TIF research paper presented on the occasion underlined, but the implementation can be faster as per CII release on 18 Sept 2023.
Tapan Singhel, Chairman of CII’s National Committee on Insurance & Pensions and CEO, Bajaj Allianz General Insurance, said the success of surety bonds is critical to the growth of the economy envisioned by the Government.
Surety bonds have a robust US$20 billion market in advanced economies, noted Vinayak Chatterjee, founder and managing trustee of TIF, and it is about time they were widely used in India.
He advocated a structure where the traditional banking structure and the insurance sector could work in partnership with each other. Fiinews.com
