The Coal Ministry has recognised Insurance Surety Bonds (ISBs) as an acceptable alternative to bank guarantees (BGs) for bid security and performance security.

ISBs is a risk transfer mechanism and can be adopted as an alternative arrangement to BGs thereby shielding the project from potential losses in the case the project developer or contractor fails to fulfil their contractual obligations.

“In line with the Ministry of Finance’s amendment to Rules 170(i) and 171(i) of the GFR, 2017, it is informed that Insurance Surety Bonds (ISBs) are recognised as an acceptable alternative to BGs for Bid Security and Performance Security,” the Ministry said in an office memorandum.

The Power Ministry has already incorporated provisions for ISBs in the Standard Bidding Guidelines for Renewable Energy projects (Solar, Wind, Hybrid, FDRE), Pumped Storage Projects, and Transmission projects, it added.

ISBs provide financial security equivalent to Bank Guarantees, while significantly reducing the credit exposure and liquidity constraint, the Ministry emphasised.

All States/ UTs and procuring utilities are advised to suitably incorporate provisions for acceptance of ISBs, or any other instruments permitted under the General Financial Rules, as valid instruments for Bid Security and Performance Security in their respective bidding documents, including those for long-term, medium-term, and short-term power procurement, as well as Battery Energy Storage Systems (BESS), it said.

This will ensure policy consistency across segments, improve ease of doing business, and facilitate wider and more competitive participation in the power sector, the Ministry suggested.

ISBs are considered a viable alternative to Bank Guarantees (BGs). They help free up working capital, which is otherwise locked in as collateral in-lieu of obtaining BGs. Under ISBs, insurance companies act as ‘Surety’ and offer financial guarantee that the contractor will fulfil the obligations as per the agreed terms.

As per the amended General Financial Rules (GFR), 2017, bid security may be accepted in the form of Insurance Surety Bonds, Account Payee Demand Draft, Fixed Deposit Receipt, Banker’s Cheque or Bank Guarantee from any of the Commercial Banks or payment online in an acceptable form, safeguarding the purchaser’s interest in all respects.

Similarly, performance security may be furnished in the form of Insurance Surety Bonds, Account Payee Demand Draft, Fixed Deposit Receipt from a Commercial bank, Bank Guarantee from a Commercial bank or online payment in an acceptable form safeguarding the purchaser’s interest in all respects.

Published on April 8, 2026