RBI wants escrow accounts to protect home buyers | india | Hindustan Times
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RBI wants escrow accounts to protect home buyers

india Updated: Feb 01, 2011 21:32 IST
Mahua Venkatesh
Mahua Venkatesh
Hindustan Times
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Is your property developer delaying construction or possibly using your booking amount or funds from banks for purposes other than building? Help could be at hand with a new measures proposed by the Reserve Bank of India (RBI), which has advised commercial banks to create escrow accounts to ensure transparency.

Sources in public sector banks told HT that the RBI had taken steps to push for escrow accounts following recent instances of abuse of money meant for home building in the home loan finance scam. The money was channelised for other activities.

An escrow is an account held by a lender or neutral third party into which either a homeowner pays money or deposits assets.

In the case of real estate purchases, the escrow is created by a tripartite agreement between the developer, the banker and the home buyer and the amount needed to complete the project is calibrated with the progress of construction.

Several banks including HDFC and Punjab National Bank have started directing funds to certain real estate projects through escrow accounts.

“For certain real estate projects we have resorted to the escrow mechanism,” a senior HDFC official said.

“It is a step in the right direction as it will help banks monitor the end use of their loans. Due to non-utilisation of loans by a few real estate firms, all companies in this sector were being viewed with a suspicious eye,” said Anil Kumar, Joint MD & CEO at realty developer Ansal API.

The US, UK, Australia and Dubai already have this model in place for real estate projects.