Trust and retention account

This query is : Open

Querist : Anonymous

Querist : Anonymous (Querist)

21 May 2015 What is the Difference between a Trust & Retention Account and an Escrow Account?
Why the earlier is termed as a retention account.

CS Mitesh Mehta

CS Mitesh Mehta (Expert)
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22 May 2015 TRA mechanism has been a common feature in financing of infrastructure projects. It seeks to protect the project lenders against the credit risk (the risk of debt service default) by insulating the cash flows of the project company. This is done through shifting the control over future cash flows from the hands of the borrowers (project company) to an independent agent, called TRA agent, duly mandated by the lenders.

An Escrow Account is an arrangement for safeguarding the borrower against its customers from the payment risk for the goods or services sold by the former to the latter. This is achieved by removing the control over the cash flows from the hands of the customer to an independent agent, who in turn could ensure appropriation of cash flows as per the its mandate. The Escrow arrangement provides for directing a pre-determined payment stream from the customers of the borrower to a special account maintained with a designated agent. Payment / deposit by the user / buyer into such an account is assumed to be a valid discharge of his liability to the supplier of the goods / services. An Escrow arrangement involves parties different from the parties in a TRA mechanism. The Escrow arrangement would involve usually four parties: the lender, the borrower, the customers of the borrower and the Escrow Agent. The mandate to the Escrow Agent would normally be finalised by the lenders in consultation with the borrower and its customers.

Querist : Anonymous

Querist : Anonymous (Querist)

22 May 2015 Dear Sir,
I have already read that note in a RBI guideline. The query here is about the use of word retention. Kindly address the same.

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