Contractors bidding for infrastructure projects will find it easier to get on board with the government accepting surety bonds as a substitute for bank guarantees. The acceptance of surety bonds will also benefit gold importers.
Typically, in projects, successful bidders are asked to provide a bank guarantee that can be invoked if the contractor fails to deliver. Banks treat these guarantees as a form of credit and charge the borrower for the same. "Insurers will be able to provide surety bonds to reduce indirect cost for suppliers and work-contractors thereby diversifying their options and acting as a substitute for bank guarantee," said Tapan Singhel, MD & CEO, Bajaj Allianz General Insurance.