The Ministry of Coal has allowed successful coal block allocatees to use insurance surety bonds instead of performance bank guarantees, a move aimed at easing financing constraints for miners and improving the ease of doing business in the sector.
Under the Coal Blocks Allocation (Amendment) Rules, 2026, notified by the ministry, coal block allocatees under the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act), can now choose between furnishing a performance bank guarantee (PBG) or an insurance surety bond (ISB) to meet their performance security obligations.
In a significant relief for existing operators, the amendment also allows companies that have already submitted bank guarantees to replace them with insurance surety bonds.
Performance security is a financial guarantee that coal block allocatees must furnish to assure the government that they will meet milestones related to mine development and operations. Until now, this obligation could only be met through bank guarantees.
By permitting insurance surety bonds, the ministry is providing an alternative mechanism under which an insurance company guarantees the performance obligations of the coal block developer.
The ministry said the reform is expected to reduce the financial burden associated with traditional bank guarantees, which typically require companies to block banking limits or collateral. By permitting insurance-backed guarantees, coal block developers will be able to free up capital for mine development, infrastructure creation and operational activities.
According to the ministry, the move is intended to improve access to alternative financial instruments while ensuring that the government’s interests remain protected through appropriate performance security mechanisms.
The facility will initially apply only to coal blocks allocated under the MMDR Act. The ministry said it will also initiate the process of extending the provision to coal blocks allocated under the Coal Mines (Special Provisions) Act, 2015, which governs the allocation of mines that were cancelled by the Supreme Court in 2014.