In a major step aimed at strengthening financial transparency and protecting homebuyers, the Uttar Pradesh Real Estate Regulatory Authority has prohibited builders from diverting homebuyers’ funds towards “assured return” schemes and introduced a strict three-bank-account mechanism for all registered real estate projects.
The new regulatory framework was discussed during a high-level meeting chaired by Sanjay Bhoosreddy with senior officials from banks, financial institutions and the State Level Bankers’ Committee.
The move is being seen as one of the strongest financial discipline measures introduced by any state RERA authority in India to prevent misuse of project funds and ensure timely completion of housing projects.
UP RERA Introduces Mandatory Three-Account System
Under the revised project account guidelines issued on May 11, every RERA-registered project in Uttar Pradesh will now be required to maintain three separate bank accounts:
- Collection Account
- Separate Account
- Transaction Account
According to the new framework, at least 70% of the money collected from homebuyers must be automatically transferred daily into the “Separate Account.”
This separate account can be used only for:
- Land-related expenses
- Construction costs
- Project development activities
The authority clarified that these funds cannot be diverted for unrelated purposes or used for financing other projects.
Builders Barred from Using Buyer Funds for Assured Return Schemes
One of the most significant reforms introduced by UP RERA is the prohibition on using homebuyers’ money for assured return schemes.
Assured return schemes are often marketed by developers promising fixed monthly returns or guaranteed income to investors until possession is handed over. However, regulators have increasingly viewed such schemes as risky because developers frequently use money from new buyers to service earlier commitments, leading to project delays and financial instability.
UP RERA’s latest decision seeks to stop such diversion of funds and protect genuine homebuyers.
Three-Certificate Rule Introduced for Fund Withdrawals
The authority has also introduced a stringent “Three-Certificate System” for withdrawals from the separate account.
Any withdrawal from the project’s separate account will now require certification from:
- An Architect
- An Engineer
- A Chartered Accountant
The certifications must confirm that the withdrawal amount is proportionate to the actual stage of construction and project progress.
This mechanism is intended to ensure that project funds are utilised only for legitimate construction activities.
Restrictions Imposed on Banks and Financial Institutions
UP RERA has issued strict instructions to banks and financial institutions regarding handling of project accounts.
Banks have been directed:
- Not to issue cheque books for project accounts
- Not to provide debit cards
- Not to allow transaction-based internet banking
- Not to create lien facilities on project accounts
The authority clarified that collection and separate accounts are meant exclusively for project development and safeguarding homebuyers’ interests.
No Operations Without Final RERA Approval
The authority also stated that project accounts cannot become operational merely on “in-principle approval.”
Banks can activate project accounts only after receiving final approval from UP RERA.
This measure is aimed at preventing premature operations and ensuring strict regulatory oversight from the beginning of the project lifecycle.
Interest on NBFC Loans Capped
In another important move, UP RERA capped the admissible interest expenditure on loans taken from Non-Banking Financial Companies (NBFCs).
The permissible interest rate has now been linked to the State Bank of India’s Marginal Cost of Lending Rate (MCLR).
The objective behind this reform is to prevent developers from inflating interest liabilities and misusing project funds under the guise of excessive borrowing costs.
Quarterly Financial Disclosures Made Mandatory
Promoters will now be required to upload detailed quarterly financial disclosures on the UP RERA portal.
The disclosures must include:
- Loan details
- Funding sources
- Financial liabilities
- Utilisation of project funds
These disclosures must be supported through affidavits, enhancing transparency and accountability in the sector.
Accounts of Expired or Cancelled Projects to Be Frozen
UP RERA has further directed banks to immediately freeze collection and separate accounts of projects whose registration:
- Has expired
- Has been cancelled
Such accounts can only be reactivated after:
- Renewal or extension of project registration
- Specific approval from UP RERA
This step is aimed at preventing unauthorised financial transactions in stalled or non-compliant projects.
Standard Operating Procedure for Closing Project Accounts
The authority also introduced a Standard Operating Procedure (SOP) for closure of separate accounts.
Under the new rules, project accounts can be closed only after:
- Completion of the project
- Prior approval from UP RERA
- Transfer of common areas to the Residents’ Welfare Association (RWA) or Association of Allottees (AOA)
This ensures that developers cannot prematurely close project accounts before fulfilling all obligations towards homebuyers.
UP RERA Focuses on Transparency and Homebuyer Protection
Addressing the meeting, UP RERA Chairman Sanjay Bhoosreddy stated that transparency, accountability and protection of homebuyers remain the authority’s highest priorities.
He emphasised that banks and financial institutions have a critical role in preventing misuse of project funds and ensuring timely completion of real estate projects.
The latest reforms are expected to significantly strengthen financial governance in Uttar Pradesh’s real estate sector and improve confidence among homebuyers and investors.
Impact of the New Regulations
The new banking framework is expected to:
- Reduce diversion of homebuyers’ funds
- Prevent misuse of project finances
- Improve timely delivery of housing projects
- Enhance accountability of developers
- Strengthen banking oversight in real estate projects
- Increase transparency in fund utilisation
Industry experts believe the reforms could become a model for other state RERA authorities across India.
Conclusion
The latest measures introduced by Uttar Pradesh Real Estate Regulatory Authority mark a significant shift towards tighter financial regulation in the real estate sector. By prohibiting the use of homebuyers’ money for assured return schemes and enforcing a strict three-account mechanism, UP RERA has reinforced its commitment to protecting consumers and ensuring responsible project financing.
The reforms are expected to improve project completion timelines, increase transparency and create a more stable and trustworthy housing market in Uttar Pradesh.
