Escrow Account - Explained in Hindi - YouTube

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Namaskar, my name is Mukul and welcome to Asset Yogi

Where we Unlock the knowledge of Finance.

Whenever there is a transaction between any two parties,

there is a buying or selling.

if there is some kind of contract.

So there is a risk there is a Transaction risk.

Now an Escrow account is opened to reduce such Risk.

So in this video we are going to see how Escrow account works.

How does it reduce transaction risk?

And we will also see some real-life examples of

how escrow account works in which industries.

So you must watch this video till the last,

So, you will understand the whole concert very well.

let's go straight to the Blackboard.

So to understand an Escrow account we will understand a simple transaction

of Buying and Selling.

Suppose this is a buyer, we call it party A,

he wants to buy some goods from this Seller, which we call party B.

Now wherever the transaction amount is huge,

it comes to the matter of lakhs or crores of rupees.

So there are trust issues.

Buyer says suppose I paid the money

and he didn't send the goods to me then it's a big risk.

my money is gone,

And the seller says suppose I sent the goods and I did not get the money,

so I have a big risk.

So to end this risk, services of Escrow account are provided,

normally Banks provide this or any Third Party Agency

So they provides escrow account service

What happens in this, an account is opened central

where the Buyer puts money first,

so this is the first step,

he put money of goods worth here,

After that the seller transfers the goods to him within the second step.

ships it.

once the buyer receives goods, the Escrow agency gets the intimation

and the escrow account agency releases the funds to the Seller.

So this is the third step. In the second step, we saw that goods were transferred.

So this is a simple transaction,

there is no transaction risk in it,

And there are no trust issues between buyer and seller

Easy transaction is done.

So, the definition of escrow account is

then it is a temporary pass through account which third party

which we call Escrow agent

so whatever bank it is

We will call him Escrow agent,

he holds the Escrow account and he helps in completing this transaction.

After that, the thing that he is holding here is this only money,

like we have seen in this example, it is holding money.

Now it can hold anything other than money,

it can hold shares, it can hold any property papers

This Agency can hold any Financial Asset, Cash or any other Security.

And as soon as there is a contractual obligation,

there will be a new contract between party A and party B.

Now this buying and selling is also a contract.

So, it releases the money as soon as the condition of the contract is fulfilled.

Escrow account money or whatever the security is.

So, the Buyer will fulfill his Obligations.

Seller will fulfill his Obligations.

So according to the escrow account, whatever amount or Security

will have to be given back to the buyer or seller.

that Escrow account agency will give it back

So the biggest advantage in this is that your transaction risk

is eliminated and there are no trust issues.

So this is a simple transaction

in which we understand how Escrow account operates.

Now we understand it with some real life examples, how it operates

So first of all, I'll take the example of Real Estate.

it has become mandatory to open an Escrow account under RERA

under the Real Estate Regulation and Development Act.

the buyers will give their money to the builder.

Let's say this is the builder who is building a project.

I'll draw a building here,

let's straighten this line a bit.

and let's say builder is building a building project.

Now suppose in this all these are general buyers,

it is all general public who have to pay money to this builder.

So whatever money it is, it will go into an Escrow account,

as much money as all these people will give,

it will go into the Escrow account.

And as soon as this construction is made,

suppose this construction is completed 20%.

So this builder will get 20% money.

As soon as 20% more completes

The builder reaches here,

then he will get 20% more money.

So in this way the money will be released to him step by step,

this money cannot be diverted by opening an Escrow account.

it a benefits.

Now there used to be a lot of Court cases,

it used to be a lot of fraud that the builders used to divert that money,

it is no longer possible.

So because of this Escrow account,

because this money will be released gradually,

the chances of completion of construction will increase a lot.

Because of this, a transaction race ends here too, the construction risk ends.

Buyers are more likely to get the Possession on time.

So what will happen in this case when the builder

will complete the entire construction and give possession.

Here I write possession,

So after possession, the 100 % payment will be released from the Escrow account.

So in this way real estate transactions are done quite easily.

With the help of an Escrow account.

If you want you can also watch my detailed video

I have made a very detailed video on RERA.

In which I have explained the entire clauses

What are the clauses under RERA and in what way both

buyers and builders can get benefit.

Now let us see the second example in this, in the Escrow account.

Escrow account is also used a lot within Project Financing.

Suppose there is a company that wants to set up its own factory.

So it wants to take some loan from the bank, we call it Project Financing.

The bank says that we will not give you direct money,

we will put money in the Escrow account

and after that, the Escrow account agency is directed to give money in tranches.

So what would that mean as the project gets completed

Suppose 20% is completed then 20% money will be released

Another 20% and 20% will be released.

So as the progress of the factory will continue

So suppose the factory is 100 % completed.

After that, the money will be released to him step by step 100% gradually.

So even in this, a risk of the bank ends that the money may not get diverted.

In the same way let's take another example,

Merchants and Acquisition Transactions take place or any business deals happen

There is also a lot of benefit of an Escrow account.

Let's say this is company A and it took over company B.

Suppose, company B is sold off, I write Sold Off here.

Here Company B was sold and Company A bought it.

What will company A say, I can't give you full money right away.

What we will do is put money in an Escrow account

and when will you get that money when you do a proper hand over.

So when Company B does a proper hand over, it will hand over the entire team.

And there is a complete cultural shift and

whatever file is there, it is paper work, whatever their assets are, it will be a complete handover.

After that, money can go into the tranche here too.

So only after that it's your money handover.

In the first step, the money was in the escrow account here

and Proper handover happened in second step.

And in the third step, the money from the escrow account reached Company B.

Company B means whoever its promoters are.

So because they had sold their company, then A has bought this company.

then their promoters will get the money

Now let's see one more example.

So in the Issue of Shares also escrow account is used.

Suppose, there is General Public

So let's say a company has issued its Shares, it want to be listed.

So it called for the applications and many people applied for it,

So, the application money is collected.

So this application money also goes in an Escrow account.

And according to SEBI's guideline, if 90% subscription is not done.

So the company cannot Issue Shares, this money has to be returned.

So suppose if 90% subscription is not done here,

then all these investors i.e. the general public get their application money back.

But if it is more than 90% then the Shares are Issued.

And the agency of the escrow account gives the money to the company,

whatever the fund is raised.

Here in the first step, the application money goes into the Escrow account

In the second step, the Escrow account agency

ensures that 90% subscription is done.

And in the third step, the money reaches the company.

So this is also a simple transaction.

Now let's look at one more example

Revenue sharing takes place within a lot of transactions, there is profit sharing order.

All the projects of For Example Public Private Partnership,

Where both government and private agencies are involved.

There the model of revenue sharing or profit sharing works.

look at Airports,

People are using it a lot in Oil Exploration.

So I also write here Revenue sharing.

And let me explain this to you as an Example,

Suppose the government has to do an Oil Exploration,

And the government does not want to bear the expenses,

and they may not have the expertise.

So they appoints the company.

So the company does full exploration at its own expense.

Here I write Rupees.

So this is exploration and extraction

Suppose this company is doing whatever it costs to extract the Oil.

So what happens in that there is a Revenue sharing model

it is already decided,

There is a beading off course a complete process is followed.

So whatever is Agreed Terms, suppose the ratio of 30% and 70% is decided

Suppose the company is investing its own money

but it says that I am ready to share 30% of the revenue with the government.

And because I'll still be benefited,

So whatever the terms and conditions are there according to the beading.

We are taking an example here,

suppose 30% of this revenue has to go to the government and 70% is to go to the company.

Whatever the amount of Oil id extracted here,

whatever will be the revenue,

Here we write the Revenue

Whatever the revenue will go in the Escrow account,

then this is your first step.

And it will be divided in the second step,

here

this some money 30% which we are saying here

suppose 30% will go to the government and 70% of the money

will go to the company.

So, this is also an advantage of an Escrow account

that the transaction risk of the government is also reduced

and the transaction risk of the company is also reduced.

So in this way, the Escrow account is operated

and we have also seen some examples in real life.

Looked at the real estate, saw the public partnership,

saw the shares, how business deals can be done regarding the Escrow account

And also we have seen some normal examples of buying and selling

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