In a transformative move, the Indian government is contemplating a significant amendment to the Insolvency and Bankruptcy Code (IBC) 2016. This change aims to recognize insurers as financial creditors, especially in cases of infrastructure project defaults. But why is this change monumental? Let’s delve deeper.
1. The Power of Surety Bonds:
Surety bonds, introduced in the Union Budget of 2022, have been a revolutionary addition to the Indian financial landscape. Essentially, a surety bond is a three-party contract. Here, one party (the surety) ensures the performance or obligations of a second party (the principal) to a third party (the obligee). This bond acts as a financial guarantee, ensuring that the principal will meet their obligations.
2. The Role of Surety Seven (007):
Since the inception of surety bonds in India, Surety Seven (007) has been at the forefront, advocating for their significance. Our technology, powered by AI and data analytics is revolutionizing the underwriting processes required for Surety Insurance. This technological intervention is crucial for the nascent Surety Bonds industry in India, ensuring accuracy, efficiency, and scalability.
3. Streamlining Recovery for Insurers as Financial Creditors:
One of the primary concerns for insurers has been the recourse to recovery. By granting insurers the status of financial creditors, their recovery process will align with that of banks. This streamlined approach will make the surety bond business more attractive and robust. Indemnity Contracts as per Section 5(8) will be enforceable by the Insurers. Also, since Section 238 of IBC, 2016 provisions that it overrides other laws, the recovery under IBC will be clearly implemented.
4. The Pioneering Spirit of Surety Seven:
Surety Seven hasn’t just been an advocate; we’ve been pioneers in the Surety Bond Insurance sector in India. Our technological solutions are set to empower the industry. They ensure that underwriting processes are not just efficient but also accurate. Our team along with Insurance providers have powered many firsts in this industry.
5. The Need for Speed for Insurers:
For the Surety Insurance industry to flourish, these changes need swift implementation. Once the Indian Ministry of Finance pushes this amendment, it’s anticipated that reinsurance support will surge, further bolstering the industry. The time is of essence to seize this opportunity and go big in this potentially INR 90 Trillion market.
6. Expanding Horizons on introduction as Financial Creditors:
With insurers recognized as financial creditors, the applications of surety bonds will widen. Sectors like trade and manufacturing can benefit as well. New products like Advance Payment Surety Bonds, LC Bonds, and License and Permit Bonds can be seamlessly introduced. This has potential to change the entire basis of Indian Financial landscape which is heavily dependent of collaterals and margins.
7. The Future is Bright for Insurance Industry:
Hon. Finance Minister Nirmala Sitharaman, in the Union Budget 2022-23, highlighted the potential of surety bonds as an alternative to bank guarantees in government procurement. This endorsement, combined with the proposed changes, signifies a bright future for the Surety Bond industry in India.
In conclusion, the move to recognize insurers as financial creditors is not just a procedural change; it’s a paradigm shift. It will empower insurers, boost the Surety Bond industry, and ensure that businesses have more tools at their disposal for financial security. With pioneers like Surety Seven leading the way, the future of Surety Bonds in India looks promising.