Bank guarantee cost calculator (and surety bond comparison)
A bank guarantee costs more than its commission. Banks charge a percentage a year on the guarantee amount, often for the claim period too and rounded up to whole months or quarters, add 18% GST, and usually hold a cash margin in a fixed deposit that earns less than your money costs. This calculator adds all of that up, using rates from published bank schedules as a starting point, and compares it with an insurance surety bond at the premium you are quoted.
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How this is calculated
Commission = max(minimum, BG amount × rate × charged months ÷ 12)
Cost of margin = margin × (cost of funds − FD rate) × (validity + claim period) ÷ 12
- Charged months = validity, plus the claim period if your bank charges for it, rounded up to whole quarters or months. PNB charges a minimum of one quarter and for the claim period; Canara and Union Bank charge by the quarter, a part quarter counting as full; SBI by the month, with broken days counted as a full month; Bank of Maharashtra excludes the claim period.
- Full cash margin: with 100% margin or deposit cover, the rate used is 25% of the normal commission, as in the SBI, PNB, Canara, Union Bank and Bank of Maharashtra schedules. Some banks also give smaller rebates at 50% or 75% margin; enter the reduced rate yourself.
- GST at 18% is added on commission and charges; bank schedules quote commission excluding GST.
- Cash margin: the margin FD earns interest, so its cost is only the gap between what the money costs you (or could earn in the business) and the FD rate, for as long as the guarantee is outstanding, including the claim period. Tax on FD interest is ignored.
- Surety bond: premium × amount × (validity + claim period) ÷ 12, plus 18% GST and the cost of any collateral at the same rate gap.
Published bank guarantee commission (excluding GST)
| Bank | Performance BG | Financial BG | Charged |
|---|---|---|---|
| SBI (w.e.f. 1 Apr 2023) | 1.60–2.20% p.a. by rating | 1.90–2.30% | By month, min ₹600; +0.25% beyond 3 years |
| PNB (existing) | 2.00% up to ₹1 crore; 1.60–2.40% above, by rating | 2.40%; 2.00–3.00% above | Upfront, incl. claim period; min one quarter |
| Canara Bank (w.e.f. 16 Mar 2026) | 1.50–2.50% by risk | 2.00–3.00% | By quarter, min one quarter |
| Union Bank | 2% p.a. | 3% p.a. | By quarter, upfront |
| Bank of Maharashtra (w.e.f. 1 Feb 2026, up to ₹25 crore) | 1.75–2.25% by rating | 1.80–3.00% | Upfront, excluding claim period |
PNB has published revised rates from 1 November 2026 (performance BG 1.60–2.60% by rating). Large exposures and well-rated borrowers usually negotiate lower rates.
The rules behind it
- RBI: the Non-Fund Based Credit Facilities Directions, 2025 (for commercial banks now Chapter XVI of the Credit Facilities Directions) apply to guarantees issued or renewed from 1 April 2026. Guarantees must be irrevocable, unconditional and honoured without demur when invoked; fees, claim period, tenor and security are left to each bank's board-approved policy. A bank can issue a guarantee to a non-borrower only in limited cases, such as when it is fully secured by eligible financial collateral.
- Surety bonds: IRDAI's Surety Insurance Contracts Guidelines, 2022 allow insurers to issue bid, performance, advance payment and retention money bonds for contracts in India, but not financial guarantees. The General Financial Rules (rules 170 and 171) have accepted insurance surety bonds as bid and performance security in central government procurement since February 2022.
Limits matter as much as cost. Every bank guarantee uses up part of your non-fund based limit and the cash margin comes out of working capital. A surety bond does not use your bank limits, which can free capacity for more bids. See our working capital guide for contractors.
Questions people ask
How much do banks charge for a bank guarantee?
Each bank publishes a schedule. For example, PNB charges 2.00% a year for performance guarantees up to ₹1 crore and 2.40% for financial guarantees; Canara Bank charges 1.50% to 2.50% for performance guarantees depending on risk; Union Bank 2% for performance guarantees; SBI 1.60% to 2.20% depending on rating. GST at 18% is added. Better-rated borrowers and larger exposures pay less.
Why is commission charged for more months than the guarantee runs?
Many banks charge in whole quarters or months, with a part period counted as full, and some (PNB, Indian Overseas Bank) charge for the claim period as well as the validity. Bank of Maharashtra charges for the guarantee period excluding the claim period. Check your bank's schedule.
What cash margin do banks ask for on a bank guarantee?
It is the bank's policy, not an RBI rule. Indian Bank's IB Contractors scheme, for example, takes a 10% margin on guarantees and LCs as an FD, with the rest covered by security. If you give 100% cash margin, most published schedules cut the commission to 25% of the normal rate.
Is a surety bond accepted instead of a bank guarantee?
For central government procurement, yes: the General Financial Rules were amended in February 2022 to accept insurance surety bonds as bid and performance security, and NHAI accepts them for its contracts. Private and state-government employers decide for themselves, so check the tender. IRDAI's 2022 guidelines let insurers issue bid, performance, advance payment and retention money bonds, but not financial guarantees.
Does RBI cap bank guarantee charges?
No. RBI's Non-Fund Based Credit Facilities Directions, which apply to guarantees issued or renewed from 1 April 2026, require guarantees to be irrevocable and unconditional and leave the fee, claim period, tenor and security to each bank's board-approved policy.
Is anything I type stored or sent to Biz Corp Solutions?
No. The calculation runs entirely in your browser. Your inputs are only kept in this page's web address so you can copy a link and share the same calculation.
Need bank guarantee or non-fund based limits?
We help contractors plan guarantee limits around their bidding pipeline and arrange them, with cash credit and equipment finance, through banks, NBFCs and financial institutions.
Commission rates, minimums, margin and rounding rules differ by bank and by your rating; your sanction letter and the bank's current schedule of charges prevail. Surety bond premiums are set by insurers case by case. Lenders, regulators and government offices apply their own rules and may round or calculate differently; their figures prevail. Biz Corp Solutions arranges funding through partner banks, NBFCs and financial institutions, and lenders decide sanction, rates and terms. Last reviewed 5 October 2026.