Surety bonds, the new growth segment is best served by collaborative approach, says IRDAI Chairman
All key stakeholders should work closely and collaboratively to aid the Government's big push in the infrastructure area, said Shri Debasish Panda, Chairman of Insurance Regulatory and Development Authority of India (IRDAI) within the existing regulatory framework. Mr Panda was speaking at a Roundtable with important 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.
Chairman, IRDAI pointed out that India is expected to spend approx 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 capacity for. This is where surety bonds need to step in to complement bank guarantees. This is important as India is estimated to be the third largest country with infrastructure activity by 2030. With such a large market potential, Chairman, IRDAI 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. Chairman, IRDAI 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 of India 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. Mr 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 envisoned by the Government.
Surety bonds have a robust $20 billion market in advanced economies, noted Mr 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.
18 September 2023
New Delhi