The Rise of Surety Bonds in India: Transforming Infrastructure Financing

India’s infrastructure sector is on a rapid growth trajectory, fueled by ambitious projects and government initiatives. Amid this boom, surety bonds are emerging as a game-changing financial instrument, offering contractors liquidity and project owners security. Recent developments, such as SafeTree’s AI-powered underwriting tool and IFFCO-Tokio’s entry into the surety bond market, signal a transformative shift.

What Are Surety Bonds?

Surety bonds are three-party agreements designed to ensure contractors meet their obligations on infrastructure projects. Unlike traditional bank guarantees, which lock up contractors’ capital, surety bonds provide financial assurance without tying up funds, making them particularly valuable for small and medium-sized enterprises (MSMEs). 

According to the report by Next Move Strategy Consulting, the global Surety Market Size is projected to surge to USD 28.96 billion by 2030, with a CAGR of 5.5% from 2025-2030.

These bonds involve the contractor, the project owner, and the insurer, with the insurer stepping in if the contractor fails to deliver.

• Key Features:
  • Legally enforceable contracts that protect project owners.
  • Free up working capital for contractors, enhancing project scalability.
  • Supported by insurers like IFFCO-Tokio, New India Assurance, and others.

Surety bonds are a strategic tool that balances risk and liquidity, enabling more contractors to participate in India’s infrastructure projects.

The Growing Role of Surety Bonds in India

India’s infrastructure sector is witnessing unprecedented demand, with bank guarantees for construction projects valued at Rs 1.70 trillion and projected to reach Rs 3 trillion by 2030. Surety bonds are steadily gaining traction as an alternative to bank guarantees, with the National Highways Authority of India (NHAI) taking the lead. Till July 2025, 12 insurance companies had issued around 1,600 insurance surety bonds as Bid Security and 207 as Performance Security, valued at approximately ₹10,369 crore for NHAI contracts, all of which were accepted by NHAI.

• Key Drivers:
  • Government backing under the Prime Minister’s infrastructure vision.
  • Regulatory approval in April 2022 for insurers to offer surety bonds.
  • Increasing participation from insurers like IFFCO-Tokio, ICICI Lombard, and HDFC ERGO.

Surety bonds are becoming integral to India’s infrastructure financing, with NHAI’s adoption and regulatory support driving their growth.

SafeTree’s Landmark Contribution

On September 11, 2025, SafeTree Insurance launched a flagship report titled Insurance Surety Bonds in India: From Policy to Practice and introduced an AI-powered underwriting tool during a workshop organized by NHAI in New Delhi. These initiatives aim to address key barriers to surety bond adoption.

• The Report:
  • Analyzes the regulatory evolution of surety bonds in India.
  • Benchmarks international models (e.g., United States, Brazil).
  • Proposes solutions for underwriting capacity and contractor credit data gaps.
• The AI Tool:
  • Evaluates unrated MSME contractors using financial, sectoral, and project-specific data.
  • Reduces underwriting time and bridges information gaps for smaller contractors.

SafeTree’s report and AI tool are pivotal in scaling surety bond adoption by enhancing accessibility and efficiency for insurers and contractors.

IFFCO-Tokio’s Strategic Entry

In 2025, IFFCO-Tokio General Insurance entered the surety bond market, joining a select group of insurers like New India Assurance and Tata AIG. Backed by its joint venture with Japan’s Tokio Marine Group, IFFCO-Tokio leverages global expertise to support India’s infrastructure needs.

• Strategic Impact:
  • Expands the pool of contractors eligible for public sector projects.
  • Enhances trust among stakeholders through robust risk mitigation.
  • Aligns with India’s growing demand for innovative financial instruments.

IFFCO-Tokio’s entry strengthens the surety bond ecosystem, bringing global best practices to India’s infrastructure sector.

Challenges in Surety Bond Adoption

Despite their potential, surety bonds face adoption hurdles in India. Regulatory approval in 2022 opened the door, but challenges persist, as highlighted by industry experts.

• Key Challenges:
  • Limited coordination between banks and insurers.
  • Insufficient data sharing for contractor credit assessment.
  • Weak enforceability of bond agreements.
• Industry Response:
  • The insurance regulator formed a task force with banks, insurers, and reinsurers to streamline operations.
  • Companies like SafeTree are deploying technology to address data gaps.

While challenges like coordination and data gaps hinder surety bond adoption, collaborative efforts and technological innovation are paving the way for progress.

Impact on the Surety Market

The recent developments by SafeTree and IFFCO-Tokio are positioning the surety bond market for significant transformation in India’s infrastructure landscape. SafeTree’s AI-powered underwriting tool addresses a critical market gap by enabling insurers to evaluate unrated MSME contractors through composite financial, sectoral, and project-specific data analysis. This technological intervention directly tackles the information asymmetry that has historically limited bond issuance to large, rated contractors, potentially broadening market participation among smaller infrastructure players.

IFFCO-Tokio’s entry into the surety bonds business in May 2025, adds another established player to the ecosystem, enhancing overall market capacity and credibility. The timing aligns strategically with India’s infrastructure expansion, where NHAI has already demonstrated strong adoption by accepting over 1,400 insurance surety bonds, signaling institutional confidence in this financing mechanism.

SafeTree’s initiative aims to reduce the time required for contractor data analysis while bridging information gaps that have traditionally restricted market access. This efficiency improvement, combined with additional market players, suggests a trajectory toward more competitive pricing structures and enhanced accessibility for contractors across various project scales.

These developments indicate the surety bond market is transitioning from a niche financing instrument to a mainstream infrastructure guarantee mechanism, supported by both technological innovation and institutional backing from key infrastructure authorities like NHAI.

Visualizing the Surety Bond Ecosystem

Aspect	Details
Market Size (2025)	Rs 10,000 crore+ for NHAI contracts alone
Projected Growth	Bank guarantees to reach Rs 3 trillion by 2030
Key Players	IFFCO-Tokio, New India Assurance, SafeTree, ICICI Lombard, HDFC ERGO
Challenges	Data sharing, regulatory parity, enforceability
Innovations	SafeTree’s AI underwriting tool, regulatory task force

The surety bond ecosystem is evolving rapidly, with data-driven tools and regulatory support driving its expansion.

Next Steps for Stakeholders

To capitalize on the potential of surety bonds, stakeholders can take the following actions:

• Contractors: Explore surety bonds to free up capital and bid for larger projects. Contact insurers like IFFCO-Tokio or SafeTree for tailored solutions.
• Insurers: Invest in AI and data analytics to streamline underwriting and expand coverage for MSMEs.
• Policymakers: Strengthen coordination between banks and insurers through regulatory frameworks to enhance enforceability.
• Project Owners: Partner with insurers to accept surety bonds, reducing financial strain on contractors.
• Market Researchers: Monitor adoption trends and quantify the impact of AI tools on underwriting efficiency.

Proactive steps by contractors, insurers, and policymakers can unlock the full potential of surety bonds, transforming India’s infrastructure financing landscape.

Conclusion

Surety bonds are rapidly evolving into a mainstream financing tool for India’s infrastructure sector. With NHAI’s adoption, SafeTree’s AI-driven solutions, and IFFCO-Tokio’s market entry, they are enhancing liquidity, accessibility, and trust. Despite challenges in data sharing and enforceability, collaborative efforts and technological innovation position surety bonds to accelerate project delivery and support India’s infrastructure growth.

About the Author

Nitrishna Sonowal is a skilled SEO Executive and Content Writer with over 3 years of experience in the digital marketing industry. With a deep understanding of the ever-evolving digital landscape, she blends analytical insights with creative storytelling to deliver impactful digital solutions. She creates content that resonates with both clients and readers alike. Outside of work, she enjoys dancing, baking, and travelling to new places. The author can be reached at [email protected].