What is the Bank Guarantee ?. How to prepare bank guarantee ? What is the purpose of Bank Guarantee ? What is the producer for make a Bank Guarantee ? What is the document required for Bank Guarantee


Bank Guarantee is an agreement between three parties Bank, Beneficiary & Applicant. This can be used to essentially ensure a buyer or seller from loss or damage due to nonperformance by the other party in a contract.

Three parties involved in Bank Gurantees.

1.Bank (Guarantor): The bank issues B.G on the receipt of the request from the applicant. 2.Beneficiary (Buyer): Who takes the guarantee.

3.Applicant (Seller): Who seeks the bank guarantee from the Bank.


The Bank Guarantee (BG) gives the safe platform for the transaction to occur.

In lieu of security deposits/Earnest Money deposits for participating in tenders.

Mobilisation advance or advance money before commencement of the project by the contractor and for money to be received in various stages like plant layout, design / drawing in project finance.

In respect of raw materials supplies or for advances by the buyer.

In respect of due performance or specific contracts by the borrowers and for obtaining full payment of the bills.

Performance guarantee for warranty period on completion of contract which would enable the supplier to realise the proceeds without waiting for the warranty period to over.

Type of Bank Guarantee

  1. Advance Bank Guarantee

•An advance payment guarantee acts as collateral for reimbursing advance payment from the buyer if the seller does not supply the specified goods per the contract.

2. Performance Bank Guarantee

•A performance guarantee might also include a clause to protect the client against losses incurred in case the contractor fails to perform and enforcement action is required.

3. Foreign Bank Guarantee

•B.G issued by the foreign Bank as per business contract required i.e. advance B.G & performance B.G etc.




BG Application to be Prepare

Below documents required to open BG,

1.P.O & P.I – duly signed and stamped (Marketing Team).

2.B.G Draft cum Contract (-Marketing Team). •Buyer Bank Details- (Marketing Team). •Date of Commissioning or Date of dispatch for PBG- (Marketing Team). •ABG Validity till complete delivery, PBG Validity as per warranty. – (Marketing Team). •BG Amount based on basic order value.

3.Received payment details required by the Bank for PBG.

4.BG Covering Letter.

5.BG Application.

6.100 Rs. Non Judicial Stamp Paper, 02 Stamp Paper

7.FD Application.


•There is no provision for amendment of B.G unlike in the case of  letter of credit. • •Instead, fresh guarantee need to be issued, cancelling the earlier ones.


The beneficiary of the B.G can invoke in writing the guarantee any time before the expiry of the guarantee period. Invocation cane be done by the telex/ hand delivery also followed by mail confirmation

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