Regulators weigh bringing insurance surety bonds under RBI's CRILC

New Delhi: Financial sector regulators are considering bringing insurance surety bond exposures under the Reserve Bank of India's Central Repository of Information on Large Credits (CRILC), a move aimed at giving banks and rating agencies a fuller picture of corporate leverage by capturing contingent liabilities that currently escape regulatory reporting.

CRILC is a database maintained by the RBI to monitor large credit exposures. "We have received some suggestions from banks on this matter and discussions are on how to address this regulatory blind spot," a regulatory official aware of the developments said.

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Insurance surety bonds are instruments under which insurers act as sureties, guaranteeing that a contractor will fulfil its obligations under agreed terms.

According to industry estimates, insurance surety bonds worth ₹50,000-60,000 crore have been issued so far.

A bank executive said lenders had made a representation to the government, pointing out that external credit rating agencies do not currently factor in exposures arising from insurance surety bonds.

"We have suggested expanding the scope of CRILC and making it a more comprehensive repository for all lending and guarantee data across the financial system," he said. Almost all ministries, central public sector enterprises (CPSEs) and other government departments now allow insurance surety bonds to be furnished instead of bank guarantees. Last month, the coal ministry allowed entities allocated coal blocks to use insurance surety bonds in place of performance bank guarantees.

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"The measure is expected to ease the financial burden associated with conventional bank guarantee arrangements and enable coal block allocatees to deploy their capital more efficiently for mine development and operational activities," the ministry said, adding that the move would improve access to financial instruments while ensuring the government's interests remain protected through appropriate performance security mechanisms.

Also last month, National E-Governance Services Ltd, in partnership with New India Assurance, launched the country's first digital insurance surety bond.

"This will help banks, as there is a digital trail available, but the data needs to be captured so as to strengthen the credit appraisal process," another executive at a state-run lender said.

Under the Irdai (Surety Insurance Contracts) Guidelines, 2022, the insurance regulator promotes and regulates the development of the surety insurance business in India.