LI Network
Published on: October 17, 2023 at 16:36 IST
The Uttar Pradesh Real Estate Regulatory Authority (UP RERA) has taken a significant step to safeguard the financial integrity of real estate projects by urging the State Level Bank Committee (SLBC) to refrain from providing debit card, cheque book, and net banking facilities to project promoters.
This initiative aims to prevent fund diversion, ensuring that funds are exclusively utilized for the construction and development of specific real estate projects.
According to UP RERA’s directive, the designated bank account must be registered solely in the name of the primary project promoter. Banks are mandated to oversee that the allocated funds are utilized exclusively for the intended construction and development of the particular project.
The rationale behind this directive can be traced to Section 4(2)(1)(D) of the RERA Act 2016, which specifies the rule of 70-30 percent for the diversion of funds in bank accounts associated with real estate projects.
In an effort to enhance transparency and financial accountability, UP RERA, in alignment with the Reserve Bank of India’s (RBI) guidelines, has made it obligatory for promoters to maintain three distinct bank accounts for all new real estate projects launched after April 1, 2021.
Sanjay Bhoosreddy, Chairman of Uttar Pradesh RERA, stated, “We have taken the initiative to ensure that these funds are exclusively used for construction, establishing a transparent system for the management of project-related bank accounts. The cooperation of both banks and promoters will foster transparency in the banking system related to project accounts, and we are committed to achieving this goal.”
UP RERA has now communicated with the State Level Bank Committee (SLBC) to ensure that bank accounts for real estate projects are managed in accordance with RBI and RERA Act directives. Beyond opening three bank accounts for new real estate projects, UP RERA has urged SLBC to instruct banks and financial institutions to adhere to the 70-30 percent fund division rule. It has also outlined a mechanism for banks to report project-related information to the UP RERA office, which will subsequently be uploaded onto a dedicated portal.
The involvement of banks in real estate projects is crucial, as they play a vital role in implementing the RERA Act.
Banks are responsible for certifying that transactions from the project’s separate account are in proportion to the construction progress, a verification carried out by engineers, architects, and chartered accountants affiliated with the promoter’s organization.
This multifaceted approach seeks to safeguard the integrity of real estate projects and maintain transparency within the sector.