What is an Escrow Account?
An Escrow Account refers to assets or revenue streams held in safe custody as safety against a contingent situation of non-fulfillment of a contract. In simpler words we may say that an escrow a/c is a third party arrangement to ensure performance of certain obligations between certain parties and operated in terms of an underlying agreement. The account will be a current a/c without cheque drawing facility or a Fixed Deposit account, as defined in the terms of the agreement.
Escrow a/c's are typically used for lending arrangements, project financing, Securitisations, M&A's, Buy-back of shares, take-overs, custody, litigations, purchase & sale of land, Source code (used in software) custody, etc. The following reasons enumerate why Escrow accounts are opened:
- Provides greater security & comfort
- Trapping of identified cash flows
- Regulatory requirements
- Custody of cash / documents
- Ease of monitoring
The funds in the Escrow a/c are held for the benefit of the Beneficiary of the a/c rather than person / company in whose name the a/c is opened. For e.g.. in a borrower lender arrangement, the a/c name is "Borrower - Escrow a/c" and the funds deposited are that of the borrower but the funds are held in the escrow a/c for the benefit of the Lender.
Often terms Trust and Retention and Escrow a/c's are used interchangeably to denote an escrow arrangement. This is not CORRECT. There is a fine line of distinction between each of them. In a Trust and Retention arrangement ICICI Bank Ltd. is appointed as a Trustee while in an Escrow Arrangement ICICI Bank Ltd. acts merely as an agent.
How to open an Escrow Account?
- Finalisation and Execution of Escrow Agreement as approved by ICICI Bank Ltd.
- Submission of Account Opening Form along with Documents as required. The current account form duly completed in all respects should be forwarded along with the agreements to the Escrow Team. The account opening form should be accompanied with:
