Surety bonds, e-BGs on NHAI radar now

Contractual Obligation

- NHAI began accepting e-BGs from last Nov

- It’s in talks with several insurance cos for surety bonds

- Surety bonds preferred as financial instruments in West

New Delhi: In a bid to expedite its operations, the National Highways Authority of India (NHAI) is working on the proliferation of e-bank guarantees (e-BGs) and insurance surety bonds for contracts. A bank guarantee is a legal contract, in which a bank, acting as guarantor, undertakes an obligation to pay the beneficiary a certain amount of money specified in the guarantee if the debtor from the original contract does not fulfill their contractual obligations.

Insurance surety bonds are financial instruments, in which insurance firms serve as surety and give a financial assurance that the contractor will execute its obligations in accordance with the agreed conditions.

The NHAI is keen on e-BGs and insurance surety bonds for contracts not just because of speed, but also because they augment transparency and efficiency in the process, official sources told Bizz Buzz. Their prevalence in the country, however, is a major issue. Currently, just 13 banks issue e-BGs.

Further, the facility is available only in 19 States and Union Territories (UTs). The banks issuing e-BGs use the platform of National E-Governance Services Ltd (NeSL). The NHAI is also negotiating with several insurance firms to explore the usage of insurance surety bonds as an additional way for the submission of bid securities and/or performance security deposits. The insurance surety bonds will be reasonably priced and offer sufficient security for NHAI projects, the sources said.

The NHAI began accepting e-BGs in November last year. It digitized all its existing bank guarantees for the purpose. There is a view among experts that surety bonds are better than bank guarantees. A working group set up by the Insurance Regulatory and Development Authority of India (Irdai) regarded surety bonds as an alternative to financial guarantees such as bank guarantees. Surety bonds are preferred as financial instruments in several Western countries. The NHAI is also keen on surety bonds, the sources said.