It allows the customers to deposit money in the bank’s account in another bank. Nostro is a Latin word that means “ours”.Let’s presume bank “A” does not have any branches in the Russia, but bank “B” does. Now, to receive the deposits in the Russia, “A” will open a Nostro account with “B”. The negative aspect includes lower interest rates than in a savings or current account. As it is a service provided by the home bank to facilitate smooth foreign exchange transactions, it typically costs more. Thorough guidelines and regulations are forced for the operation of these accounts.

• The Reserve Bank of India has approved two Russian banks, Sberbank and JSC VTB, to open special Vostro accounts for rupee trade.
• The Nostro account is the record maintained by the bank that has money deposited with another bank.
• Usefulness of any foreign Currency can be had only if it is converted in to home currency because, foreign currency is not used or acceptable in India if we take example of India.

The money that is deposited into a Vostro account will be sent to the account holder’s bank. An account held by one bank in another bank is known as a Nostro account. Customers can use it to transfer funds from one bank account to another. The banks are acting in a fiduciary relationship and they share a principal-agent relationship. The correspondent foreign bank is a financial intermediary in the transactions that they are involved in. The Reserve Bank of India has approved two Russian banks, Sberbank and JSC VTB, to open special Vostro accounts for rupee trade.

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So, if an Indian bank like the SBI wants to open an account in the United States, it will get in touch with a bank in the US, which will open a Nostro account and accept payments for SBI in dollars. The Reserve Bank of India has approved the opening of nine Special Vostro Accounts with two Indian banks, UCO and IndusInd Bank, to facilitate rupee trade overseas. If a person deposits money in the Vostro account, it will be transferred to the account holder’s bank. Closely monitored nostro accounts can be used for better reconciliation of statements.

The approval came months after India’s central bank announced its norms for rupee trade. This account helps in simplifying foreign exchange transactions as well as trade settlements. It is an account held by a bank that allows the customers to deposit money on behalf of another bank. Vostro account refers to the account that is held by a bank which https://1investing.in/ allows customers to deposit money on behalf of another bank. The terms Nostro and Vostro are used in the bilateral correspondence between the concerned two Banks ie the Bank maintaining the account and the Bank in whose book the account is maintained. But in such correspondence when third bank account is referred it is said as LORO account.

Just upload your form 16, claim your deductions and get your acknowledgment number online. You can efile income tax return on your income from salary, house property, capital gains, business & profession and income from other sources. Further you can also file TDS returns, generate Form-16, use our Tax Calculator software, claim HRA, check refund status and generate rent receipts for Income Tax Filing. Enables one to offer international banking solutions to a customer without opening a bank branch in a foreign nation. Bank B, where bank A’s money is deposited, will use the term Vostro account to refer to “your money that is on deposit at our bank”. Full access to our intuitive epaper – clip, save, share articles from any device; newspaper archives from 2006.

What is a Nostro Account?

According to which –for settlement of trade in rupee with any country, an Authorised Dealer bank in India may open special rupee Vostro accounts of correspondent banks of the partner trading country. The advantage of these accounts is to minimize the time for transfer of funds. Once the funds are received in the Nostro account abroad, the bank will then credit the same to the account of the company here in India at the prevailing exchange rate.

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What are Nostro and Vostro Accounts

Payments in rupee for the export and import of goods will be made to these Vostro accounts in the case of trade with Russia. The exporters and importers in both countries will be the owners and beneficiaries of this money. Russian banks have been permitted by the RBI to open special Vostro accounts to pave the way for rupee-based export-import transactions.

The central bank’s move has come in the wake of increasing pressure on the Indian currency in the wake of Russia’s invasion of Ukraine and sanctions by the US and the EU. Usefulness of any foreign Currency can be had only if it is converted in to home currency because, foreign currency is not used or acceptable in India if we take example of India. For giving usefulness to any foreign currency the said currency needs to be converted in to the home currency. Foreign currency means any other currency other than the home currency, so if we say with reference to the above example foreign currency means any other currency other than Rupee for India, Pound Sterling for UK and US Dollar for USA. Logged out of SWIFT -the messaging service to facilitate and confirm cross-border payments – most Russian banks are looking for alternative ways. Let’s presume bank “A” does not have any branches in the US, but bank “B” does.

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The move by the Central Bank follows increased pressure on the Indian currency as a result of Russia’s invasion of Ukraine and sanctions imposed by the US and the EU. Director Sir will provide conceptual understanding with around 800 Mindmaps. The RBI allowed nine such accounts, including IndusInd Bank and UCO Bank. Pick your 5 favourite companies, get a daily email with all news updates on them. Unlock 30+ premium stories daily hand-picked by our editors, across devices on browser and app. The account opened by the Indian bank in the US will be a Nostro account for the Indian bank, while for the US bank, the account will be considered a Vostro account.

To facilitate settlement of international trade in rupee, as many as nine special vostro accounts by Russian banks have been opened with two Indian banks after the RBI’s go-ahead. Out of SWIFT — the messaging service to facilitate and con-firm cross-border payments – most Russian banks are looking for alternative ways. India and several other countries have been looking for ways so that trade can continue. India and Russia have decided to directly trade in rupee-ruble — here Nostro and Vostro accounts come into play. In July, the RBI established a mechanism to settle international trade in rupees “to promote growth of global trade with a focus on Indian exports and to support the growing interest of the global trading community in the rupee.” While in essence, it is the same account that is being spoken about, the perspective from which it is being seen matters.

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For example when XYZ bank of India is maintaining an account with ABC Bank in New York USA in USD when PQR bank of India refers the said account in correspondence with XZY Bank, Now YORK it is said LORO account . The Indian company gets paid in foreign currency in case of exports difference between nostro and vostro account and the company converts that foreign currency to rupee since it needs rupee for its needs, in most of the cases. So, in case of imports, the Indian company has to pay in a foreign currency (mainly dollars and could also include currencies like pounds, Euro, yen etc.).

Two kinds of accounts, Vostro and Nostro, are often mentioned together. Both Vostro and Nostro are technically the same type of account, with the difference being who opens the account and where. Curated newsletters on markets, personal finance, policy & politics, start-ups, technology, and more. Now let us look at the differences between Nostro and Vostro accounts. ASPIRE IAS specialises in all three stages of Civil Services preparation. Here, we provide best quality education at the best price with the aim of spreading an EDUCATION REVOLUTION. Read More.

Accordingly, for settlement of trade transactions with any country, an AD bank in India may open special rupee Vostro accounts of correspondent banks of the partner trading country. A Vostro account is an account that a domestic bank holds for a foreign bank in the domestic bank’s currency, i.e., rupee. The idea is to get around Western sanctions against Russia by carrying on trade in rupees. Without having a physical presence in other nations, they help in the execution of huge foreign exchange transactions. They let banks keep money in other currencies without worrying about the exchange rate. As it is merely a transfer of funds between accounts in the same bank, it is simple to use.

Now, to receive the deposits in the US, “A” will open a Nostro account with “B”. For example, if an Indian buyer enters into a transaction with a seller from Germany, the Indian buyer has to first convert his rupees into US dollars. The seller will receive those dollars, which is then converted into euro.