India’s infrastructure financing landscape has undergone a perceptible shift since surety bonds were formally introduced under the Insurance Regulatory and Development Authority of India’s framework in April 2022. For most of the early period, progress was sluggish. Despite regulatory backing and government encouragement, the market remained constrained by conditional product structures, thin insurer participation and a legal environment that still heavily favoured bank guarantees. However, with India’s National Infrastructure Pipeline (NIP) requiring bank guarantees of approximately Rs 90 trillion over five years – capacity that banks simply do not have – surety bonds are beginning to play a bigger role. Till date, as per industry estimates, over 3,300 surety bonds have already been issued across the country, representing an aggregate value exceeding Rs 290 billion.
The market finds its footing
The surety bond landscape has changed meaningfully. These bonds have evolved from being a policy aspiration to becoming an operational instrument across multiple infrastructure sectors. India is currently developing infrastructure at a rapid pace, and every project, be it highways, power transmission lines, smart cities, or renewable energy farms, needs a financial guarantee that the contractor will deliver. For decades, this guarantee came from banks but the trend is now reversing. Going by the current pace of surety bond issuance, the market is anticipated to hit Rs 1 trillion by 2029-30. This number clearly reflects the underlying potential of these bonds, as customers and insurers are now beginning to see the operational and liquidity advantages of these insurance-backed guarantees. It also reflects the compounding demand from central public sector enterprises and the gradual entry of state-level agencies.
The first product was launched by Bajaj Allianz in December 2022. By March 2024, less than 100 surety bonds had been issued. Soon, insurance companies were issuing an average of 25 surety bonds per week. By July 2025, twelve insurers had issued bonds worth Rs 103.69 billion for the National Highways Authority of India (NHAI) contracts alone – 1,600 bid security bonds and 207 performance bonds.
The road sector has been the primary engine of growth for surety bonds. In November 2023, NHAI accepted India’s first insurance surety bond for its toll-operate-transfer (TOT) Bundle 14 monetisation bids, working alongside the Highway Operators Association of India, SBI General Insurance, and AON India Insurance. That bond, issued at 0.25 per cent, eliminated the requirement for margin money, translating into direct cost savings for concessionaires. Fast forward to May 2024, NHAI received 164 insurance surety bonds in a single month – 20 for performance security and 144 for bid securities – a volume that would have been unthinkable at the time the product was launched.
Central public sector enterprises across sectors have incorporated the instrument into their tendering processes. NTPC Limited, SJVN, NHPC India Limited and GAIL India have adopted it in the energy sector. Rail Vikas Nigam Limited has done so in the railways. Indian Oil Corporation Limited has extended the product to the hydrocarbon sector. The coal ministry has allowed insurance surety bonds to replace bank guarantees. Additionally, Bharat Sanchar Nigam Limited has included the product in the telecom sector. The adoption of surety bonds is becoming increasingly visible across both central and state governments, signalling that these instruments have moved beyond experimental use cases into large-scale infrastructure project execution.
Insurance-backed surety bonds could release Rs 1.13 trillion in liquidity for micro, small and medium enterprises (MSMEs) by replacing eligible bank guarantees, potentially increasing the sector’s contribution to India’s GDP by around 0.9 per cent, as per a media report. Now, the question is no longer whether this instrument has a future in India, but how quickly the remaining associated challenges can be overcome to move towards mass adoption of this instrument.
Bold policy steps strengthen confidence in surety bonds
The institutional scaffolding around surety bonds has also evolved. In August 2024, IRDAI organised a conference, bringing together insurers, banks and reinsurers under the General Insurance Council. The regulator then announced the formation of a task force comprising representatives from all three categories, mandating them to address the critical bottlenecks of bank-insurer collaboration, data sharing and the expansion of surety bond scope.
The finance ministry has taken substantive steps as well. The decision to recognise insurance surety bonds as equivalent to bank guarantees for all central government procurements through amendments to the general financial rules gave the product legal parity at the procurement stage. The Union Budget for 2025-26 reinforced this direction, underlining the government’s commitment to a non-fund-based credit ecosystem and signalling that the policy environment will continue to favour these instruments. At present, the active insurer base includes New India Assurance, SBI General Insurance, ICICI Lombard General Insurance, HDFC Ergo General Insurance, Tata AIG General Insurance, Universal Sompo General Insurance, and IFFCO Tokio General Insurance, in addition to Bajaj Allianz General Insurance, which pioneered the product in India.
In April 2026, the Ministry of Power issued a formal directive launching insurance surety bonds as an acceptable alternative to bank guarantees for bid security and performance security across power procurement frameworks. The provisions were incorporated into the standard bidding guidelines for renewable energy, pumped storage and transmission projects. The ministry has since advised all states, union territories and procuring utilities to include the instrument in their bidding documents covering long-term, medium-term and short-term power procurement, as well as battery energy storage systems. For a sector that is simultaneously managing record capacity addition targets and facing significant liquidity stress among engineering, procurement and construction (EPC) contractors, this directive could prove transformative.
Lastly, reinsurers can price risk with confidence, but not ambiguity. The market must therefore move decisively towards “modelable risk” rather than “narrative risk”. In line with this, the IRDAI’s solvency and exposure-related reforms introduced in 2023 were an important signal towards expanding capacity in the sector. The next phase of growth, however, will not come from regulation alone. It will be driven by standard forms, operating discipline, documentation quality and ecosystem-wide consistency.
Plugging structural gaps
Some blind spots continue to plague the widespread adoption of these bonds. A key challenge is about standardising execution across the ecosystem. Surety revolves around clearly defined default triggers, cure and notice pathways, acceptance conditions, liquidated damages caps, payment certification processes, change-control mechanisms and release or expiry procedures. Whenever these elements remain ambiguous, the predictable consequences include stalled underwriting, diminishing beneficiary confidence, an increase in legal disputes and inefficient amendments. Contracts that are standardised, auditable and operationally transparent are significantly easier for reinsurers to evaluate. Ultimately, the expansion of surety capacity will depend on how effectively risks can be understood, modelled and priced by reinsurers.
Currently, the lack of reliable contractor data affects accurate pricing, and the Insolvency and Bankruptcy Code disparity gives banks a structural advantage that no amount of insurance innovation can fully offset. As the law currently stands, insurers writing surety bonds do not enjoy the same recovery rights as banks when a contractor defaults or enters insolvency. Banks can invoke bank guarantees as an on-demand instrument; insurers have no equivalent recourse. This asymmetry creates a direct pricing disadvantage for surety products and fundamentally constrains reinsurers’ appetite to participate.
Lenders and insurers operate in isolated information silos. Contractors’ credit histories, project execution track records and litigation profiles are not systematically shared across the banking and insurance ecosystems. The issue has been brought to the public eye. In April 2026, the RBI and IRDAI acknowledged that insurance surety bonds are not yet captured properly by credit information companies – creating a major blind spot in assessing contractor leverage and contingent liabilities across the system. However, the actual integration of surety exposures into the credit reporting systems remains a work in progress.
Underwriting capacity is another constraint. Experienced professionals, pricing models and claims frameworks are all at an early stage of development. The SafeTree AI underwriting tool, launched at the NHAI workshop in September 2025, is an early attempt to address this gap through technology, but it will need to operate within a far richer data environment before it can materially improve pricing accuracy and insurer confidence.
NHAI has already encouraged the use of surety bonds as an additional mode for bid and performance security, indicating the broader direction of policy thinking. The next stage, however, is to ensure that acceptance becomes uniform and predictable across projects, departments and field-level offices rather than being dependent on individual interpretation. Large infrastructure owners, public sector entities and government departments should institutionalise the acceptance process for surety bonds through standard operating procedures. Moreover, EPC contractors that intend to scale their use of surety bonds must treat the process as an institutional programme rather than a transaction-by-transaction exercise.
Parting thoughts
While surety bonds have been formally introduced in and accepted by the market, growth is well below its potential, with many legislative actions pending. Looking at the current efforts, the combination of supportive policy and rising adoption indicates that non-collateral guarantees are positioned to become the preferred mechanism for project execution in the years ahead. Moreover, National E-Governance Services Limited (NeSL) is working on electronic insurance surety bonds (e-ISBs), pitching them as an alternative to all forms of performance bid guarantees.
All in all, India’s participation in this market remains disproportionately small for an economy of its scale. However, the gap between ambition and reality has narrowed considerably over the years. With the right legislative corrections, the instrument can finally move from a promising alternative to bank guarantees into a market-defining financing avenue.
Harman Mangat
