Bank guarantee charges: commission, margin and fees on a published bank card

Bank guarantee charges in short

A bank charges for a guarantee because it takes on a risk. If you default, it pays the beneficiary first and chases you later. So the main charge is a commission, a percentage of the guarantee amount for each year it is in force. Around it sit a minimum fee, a small sending fee, a margin the bank may hold, and your own interest cost if the guarantee is invoked.

There is no interest on a guarantee while it stands, because the bank lends no cash. People who search for "bank guarantee interest rate" are usually asking about this commission. Each bank sets its own card, and the figures below are one bank's published card shown as an example. They are indicative, set by the lender, and not an offer.

RBI requires each bank's guarantee policy to cover fees and commission, so you can ask for the written card (RBI notification).

One bank's published card: inland guarantees

Bank of Baroda publishes service charges for guarantees where the borrower is not a large corporate. The card shows an effective date of 10-Dec-2022. It was read on 02-Oct-2026 (Bank of Baroda).

Performance guarantee (commission a year, minimum ₹1,500)

Financial guarantee (commission a year, minimum ₹1,500)

Other terms on the same card (Bank of Baroda):

• For MSME accounts without a rating, the commission is the BBB rate.
• With 100% cash margin from the borrower, the commission is 25% of the card rate.
• A fee of ₹150 for SFMS, SWIFT or courier is collected on each guarantee.
• The commission is charged at issue, for the period including any claim period.
• If the guarantee is returned early, after 60 days, 50% of the commission for the unexpired period is refunded.

Other guarantee charges on the same bank's card

ICICI Bank's published ceiling

ICICI Bank does not publish a rating-wise card in its schedule of charges. It states that up to 2% a year commission is charged on a pro rata basis, based on the tenure and amount, on letters of credit and bank guarantees (ICICI Bank). The actual figure depends on the file.

Worked examples

These are arithmetic on Bank of Baroda's card. They are not quotes from any lender. Recompute with your own bank's card.

A guarantee of ₹10,00,000 for one year, unrated MSME priced as BBB (Bank of Baroda):

The same performance guarantee for three years at 2.00% a year is about ₹60,000, charged at issue (Bank of Baroda).

Returning it early: if the one-year performance guarantee of ₹20,000 commission is returned after six months, about ₹10,000 of commission relates to the unexpired half. Half of that, about ₹5,000, is refunded (Bank of Baroda).

In every example above, a cash margin is a separate matter. The money you deposit is blocked while the guarantee is live, and the bank's terms say when it is released.

What margin means

A margin is security the bank holds for a guarantee. It can be a cash deposit or a fixed deposit. On this bank's card, 100% cash margin cuts the commission to a quarter of the card rate (Bank of Baroda). That is why a "bank guarantee against fixed deposit" is cheaper in commission, but it ties up your cash. RBI's directions also let a bank issue a non-fund facility to a customer with no funded facility if the facility is fully secured by eligible financial collateral (RBI notification).

How to keep guarantee charges down

1. Ask for the card first. Compare commission, minimum fee, sending fee and refund terms across banks.
2. Size the amount and period to the contract. You pay a percentage a year, so extra months cost extra.
3. Return the guarantee early once the contract ends. On the card above, a refund applies after 60 days.
4. Weigh cash margin against commission. A deposit lowers the fee but blocks your cash.
5. Build a clean file. A better rating moves you down the card. See the business loan charges and fees page for other fees to compare.

Capnix does not issue guarantees or set charges. The bank decides. Capnix can take a trade requirement to the lenders on our lender panel. See the trade finance product page, or start with the free loan readiness check, which gives a Capnix score from 0 to 100.