Bank Guarantee

Hi  Kushan,

First of all, the person who wants to issue a bank guarantee, has to maintain a current account in the issuing bank and he should have sufficient balance there. There after, the person concerned has to submit an application to the bank for issuing the BG. The BG may have to be issued either in the Bank's format or in the format prescribed by the beneficiary. The text/content has to be typed in a Non-judicial Stamp Paper of appropriate value, desirably a higher value prevelant either in the place of issuing or in the place of submission, because Stamp Duty is differ state to state. If the value of the BG is more than Rs.50/-, then it has to be signed by two officials of the issuing bank. There has to be witnesses at the fag end of the BG. These are the minimum requirements for issuance of a BG.

You should apply the bank, and you wil ahve to deposit the amount of bank guarantee in the bank or as bank desires. Bank will issue Guarantee in favour of the person/company in whose favour you want to issue BG. Bank charges normally one % of total amount annually.

Agreed with the members. Best to meet Bank Officials  to know their terms.

Thanks.....

 Dear Sir,

Thankyou for sharing your knowledge abt BG, I wanted to know that Suppose I want to take BG for a validity of 8  Yrs, do I have to pay the commission of 8 yrs at a time while issuing the BG or I can pay it annually.

I AGREE WITH ASHOK YADAV JI 

Suppose the contract of work is signed at Mumbai, the contractor's regd.office is in Tamil Nadu and the Bank Guarantee is furnished at the site located in Uttar Pradesh, In such a case what is the appropriate rate of Stamp duty payable on a Bank Gurarantee???

1) it is not necessary to be a current a/c holder with the bank. a savings a/c holder can also request the bank to issue a BG on his behalf.

2) the stamp duty applicable will be as per stamp act of the state where the BG is being executed, i.e., where the bank officials sign the BG. however, in the practical world, if the beneficiary at Maharashtra wants a BG to be executed on a stamp paper of Rs.1000, whereas the BG is issued at Manipur where a stamp paper worth Rs.100 will suffice, there is no option for the BG applicant but to agree to what the beneficiary requires. banks will issue BG on whatever worth of stamp paper the BG applicant requires, or as per the stamp act, whichever is higher. 

3) banks may/may not ask for any security for the issuance of the BG. taking security/margin money is absolutely at the bank's discretion.

4) witnessing a BG attracts ad valorem stamp duty. witnessing is not mandatory, and is better avoided.

5) commission for a 8 year BG can be "deferred". that is, the bank may calculate the total commission on the BG amt for 8 years, but recover the commission in 8 yearly instalments. this is at the discretion of the bank.

6) banks decide the no.of persons who shall sign the BG. there is no law on this nor any RBI directive. but yes, generally, all BGs are signed by atleast 2 bank officers.