Nostro Account FAQs
What is a Nostro Account?
A Nostro Account is a type of account that one bank holds in a foreign currency with another bank. Usually, banks use such accounts to transact in a foreign currency and reduce the cost of currency exchange and other transaction charges. For instance, HDFC Bank GIFT City has Nostro Accounts with some of the top banks in USA, Europe, the UK and Japan where the account is maintained in the country’s local currency.
How does a Nostro Account work?
Let’s say Bank ABC in India has an account with Bank XYZ in USA. This account is called a Nostro Account and the account is maintained in USD. This allows Bank ABC to carry out USD transactions conveniently while also minimising the exchange rate fluctuation risk. Here, Bank XYZ is also known as the facilitator bank. Nostro Accounts can be held by banks as well as corporations involved in international trade. These accounts allow transactions in country where the bank or corporation typically does not have a brick-and-mortar presence. The facilitator bank carries out such transactions on their behalf.
How does a Nostro Account differ from a Vostro Account?
The difference between Nostro Accounts and Vostro Accounts is perspective. The terms ‘nostro’ and ‘vostro’ are derived from the Latin terms for ‘ours’ and ‘yours’, respectively. Therefore, if Bank A has and account with Bank B in Bank B’s home currency, Bank A is said to have a Nostro Account with Bank B or ‘our account in your books’. For Bank B, such accounts are termed Vostro Accounts or ‘your account in our books’. Both accounts allow international transactions.
