IRDA issues final guidelines for the issuance of surety bonds by the insurance companies

Surety bonds are a tool that assists in mitigating risks in various projects. Through this system, surety shall ensure the project owner that the contractor shall perform the contract terms as decided by the parties. The surety acts as a guarantor to the contractor. In case of default, the surety would pay the project owner and later recover that amount from the contractor, including reimbursement and legal fee, etc. This concept is prevalent throughout the world, especially in cases of public work projects which involve high stakes.

Insurance Regulatory and Development Authority of India (IRDA) finalized the guidelines regarding the issuance of various types of surety bonds in India. Last year, the Ministry of road transport and Highway requested IRDA to develop regulations with which general insurance companies could issue surety bonds. Government has nearly Rs 7 trillion investment ready for infrastructure projects for the next 2-3 years. This move is set to facilitate that.