Calcutta, Oct 11: The Srei group will partner New Zealand-based CBL Corporation to offer surety and guarantee bonds for infrastructure projects as an alternative to bank guarantees.

The group has entered into a memorandum of understanding with CBL to explore a 50:50 joint venture that will provide performance guarantees and sureties through bonds to contractors participating in infrastructure project tenders, reducing their working capital requirement and facilitating project completion without delays.

This would mark the foray by a non-bank finance company into the guarantee bonds space and Sunil Kanoria, vice-chairman Srei Infrastructure Finance, identified two key conditions that would determine the success of this joint venture. First, the products have to be approved by the regulator and second various departments of the government would have to allow these products in the tenders.

"We have taken the first step by entering into a memorandum of understanding. The next step would be to make the application to the authority," Kanoria told The Telegraph. He added that the risk of default could be reinsured and sold globally thus limiting the impact on Srei's books.

Srei and CBL will study the regulatory environment that some of these products may encompass and structure an appropriate vehicle to offer the products for the Indian market.

"In developed nations like the US, Canada, Germany, a bid bond or surety or performance guarantee is part of pre-qualification criteria for bidders, especially for government-sponsored infrastructure projects. In India, the market for such products has not yet developed. As of now, only banks provide such instruments and there is an urgent need for developing such products," Kanoria said.

This alternative would also facilitate stressed banks to derisk their books.

Vikash Khandelwal, CEO of the proposed joint venture, said the government's focus on the infrastructure space has improved business confidence.