What are Nostro and Vostro accounts?

Apart from a weakening world order, Russia’s invasion of Ukraine also brought to fore the intimate link between banking and foreign trade.

Logged out of SWIFT -- the messaging service to facilitate and confirm cross-border payments – most Russian banks are looking for alternative ways. India and several other countries too want a way out so that trade can continue. 

India and Russia are now exploring to directly trade in rupee-ruble. And this is where Nostro and Vostro may come into play.

Nostro, along with Vostro, is a term used to describe a bank account. In fact, both terms are used to describe the same bank account. Confused?  We will explain.

First the basics.

These terms come into play when one bank has another bank’s money on deposit.   Typically, this is related to international trade and financial transactions.

Nostro and vostro are derived from Latin words that mean "ours" and "yours," respectively.

Let us see how it works.

Now, let us clear up the earlier confusion. We'll borrow Investopedia's explanation.

Bank A will use the term Nostro account to refer to "our" account held by Bank B. Basically, Nostro is shorthand for "our money that is on deposit at your bank".

The Nostro account is the record maintained by the bank that has money deposited with another bank. And, what is their use? They enable simplified trade settlements and foreign exchange transactions. Nostro accounts are denominated in foreign currencies.

More From This Section

RBI okays 2-yr extension of Murli Natarajan's tenure as MD-CEO of DCB Bank

Union Bank launches super-app UnionNXT, digital project SMBHAV

HDFC Bank looking to raise up to Rs 50,000 cr via bonds over 12 months

Equitas SFB gross advances up 15% to Rs 20,648 cr in FY22; deposits up 16%

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".

For example, if an Indian bank maintains an account with an overseas bank in the US in dollars, such an account, maintained in a foreign currency at a foreign centre, would be called a Nostro account by the concerned Indian bank. The American bank concerned will refer to the same account as a Vostro Account.

So how will it work?

Suppose a Russian bank opens a rupee account with a bank in India and puts Rs 10 lakh in it. Then India’s liability becomes rouble 10.1 lakh as the exchange rate is 1.1. It will be a vostro account. 

Now, if an Indian businessman exports goods to a Russian buyer worth ₹10 lakh, then the Indian bank will debit the Russian bank’s vostro account and the transaction will be squared up. 

Watch video