The central government is considering introducing insurance bonds as an alternative to bank guarantees. Finance Secretary TV Somanathan has given this information.
According to the information received, the government is working with the regulators on this particular issue. Somanathan made the announcement during a meeting of Finance Minister Nirmala Sitharaman and industry leaders. Let us tell you that Sitharaman is on a two-day visit to Mumbai.
According to an official statement, the government is considering introducing insurance bonds as an alternative to bank guarantees. Bank guarantee is usually asked for at the time of granting a loan and is normally required as a mortgaged asset. An insurance bond is also like a guarantee but it does not require any kind of asset.
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On this occasion, Revenue Secretary Tarun Bajaj said that the department is working on tax related matters of startups. He sought suggestions from the industries in this regard. Sitharaman has assured the industry of finding a solution in the matter of high power prices and other rules. Sitharaman says that the economy is gradually shifting from bank based lending model to market based finance model. The long term lending of the projects will be ensured through Development Finance Institutions (DFIs). With this, DFI will increase the competition for banks in the coming times.
Last year also there were reports that insurance regulator IRDA is also looking at the option of insurance companies offering surety bonds in case of road projects.
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