Definition:
A Nostro account is a bank account that a bank holds in a foreign country with another bank, in the currency of that country. It enables banks to send, receive, and settle international payments without physically moving money across borders.
What is a Nostro Account?
The term "Nostro" comes from the Latin word meaning "ours." From the perspective of the account-holding bank, it means "our account with you."
For example, if an Indian bank maintains a US Dollar (USD) account with a bank in the United States, that account is the Indian bank's Nostro account.
How Does a Nostro Account Work?
Suppose an Indian customer wants to send money to someone in the United States. Instead of transferring physical cash, the Indian bank uses its USD Nostro account held with a U.S. bank. The payment is settled from that account, making international transactions faster and more efficient.
Similarly, when an Indian exporter receives payment in USD, the funds may first be credited to the Indian bank's USD Nostro account before being transferred to the exporter's account in India.
But they are referred to differently from different perspectives. The table below will be able to explain it properly.
Perspective | What It Is Called | Example |
Indian bank holding a USD account in the U.S. | Nostro Account | An Indian bank's USD account with a U.S. bank. |
U.S. bank maintaining that account for the Indian bank | Vostro Account | The same account is the U.S. bank's Vostro account because it is "your account with us." |
A bank referring to an account held by a third bank | Loro Account (less commonly used) | Refers to a third-party account in certain banking situations. |
Why Are Nostro Accounts Important?
They serve several important functions:
Settle international payments in foreign currencies without routing every transaction through multiple intermediaries.
Provide access to foreign currencies, allowing banks to maintain balances in currencies like USD, EUR, or GBP for customer transactions.
Reduce settlement delays by using pre-funded accounts instead of arranging funds for every cross-border payment.
Manage foreign exchange liquidity, ensuring banks have enough foreign currency to meet payment obligations.
Support international payment networks such as SWIFT, where Nostro accounts are commonly used to settle transactions between correspondent banks.
Definition:
A Nostro account is a bank account that a bank holds in a foreign country with another bank, in the currency of that country. It enables banks to send, receive, and settle international payments without physically moving money across borders.
What is a Nostro Account?
The term "Nostro" comes from the Latin word meaning "ours." From the perspective of the account-holding bank, it means "our account with you."
For example, if an Indian bank maintains a US Dollar (USD) account with a bank in the United States, that account is the Indian bank's Nostro account.
How Does a Nostro Account Work?
Suppose an Indian customer wants to send money to someone in the United States. Instead of transferring physical cash, the Indian bank uses its USD Nostro account held with a U.S. bank. The payment is settled from that account, making international transactions faster and more efficient.
Similarly, when an Indian exporter receives payment in USD, the funds may first be credited to the Indian bank's USD Nostro account before being transferred to the exporter's account in India.
But they are referred to differently from different perspectives. The table below will be able to explain it properly.
Perspective | What It Is Called | Example |
Indian bank holding a USD account in the U.S. | Nostro Account | An Indian bank's USD account with a U.S. bank. |
U.S. bank maintaining that account for the Indian bank | Vostro Account | The same account is the U.S. bank's Vostro account because it is "your account with us." |
A bank referring to an account held by a third bank | Loro Account (less commonly used) | Refers to a third-party account in certain banking situations. |
Why Are Nostro Accounts Important?
They serve several important functions:
Settle international payments in foreign currencies without routing every transaction through multiple intermediaries.
Provide access to foreign currencies, allowing banks to maintain balances in currencies like USD, EUR, or GBP for customer transactions.
Reduce settlement delays by using pre-funded accounts instead of arranging funds for every cross-border payment.
Manage foreign exchange liquidity, ensuring banks have enough foreign currency to meet payment obligations.
Support international payment networks such as SWIFT, where Nostro accounts are commonly used to settle transactions between correspondent banks.