Did You Know: What is a Nostro and a Vostro Account? | RBI Grade B 2019 Question

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You might be getting nightmares about RBI Grade B notification and thus feeling tensed about it. Getting stressed over RBI Grade B 2019 notification will not be of any help rather be prepared in such a way that the day RBI releases the notification you are ready to just go and give the exam. You help you prepare in such a way, ixamBee is back with its next blog topic “What is a Nostro and a Vostro Account?”

Let us understand “What is a Nostro and a Vostro Account?

Nostro and Vostro account are normally used in the context of foreign exchange transactions done by the banks or during currency settlement. Apart from these two, there is another term – Loro accounts.

Let’s understand each, one by one:

Nostro account

It refers to an account that a domestic bank holds in a foreign currency in foreign bank.

Nostros, a term derived from the Latin word for “ours,” are frequently used to facilitate foreign exchange and trade transactions. The opposite term “Vostro,” derived from the Latin word for “yours”.

For example, Nostro A/C (our account with you) – is a current account maintained by a domestic bank (say SBI) with a foreign bank (say Citi Bank) in a foreign country.

Figure 1: Nostro Account

 

Vostro account

It is the account which is held by a foreign bank with a domestic bank in domestic currency. For example, if Citibank maintains an account with SBI in India in INR, it will be a vostro account for SBI.

Figure 2: Vostro Account

Notice that an account which is Nostro for one bank is Vostro for another. As in the above examples, when SBI opens a Nostro account with Citibank, it is a Vostro account for Citibank. Similarly the Vostro account for SBI is actually a nostro account for Citibank.

As such, a nostro account and a vostro account actually refer to the bank account but from different bank’s perspective.

 

Loro Account

It means “Our account of their money with you”. It is a current account maintained by one domestic bank (say SBI) for other domestic bank (say PNB). Here PNB does not have a current account with Citibank and uses SBI’s nostro account with Citibank for some transaction. In that case, it is a Loro account for PNB. It is like a third party account.

Figure 3: Loro Account

 

Hope now you understood What is a Nostro and a Vostro Account?

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About the Author Prachi Agarwal:

Prachi Agarwal is an MBA (Finance) from BIMTECH, Noida and B. Com (Hons) from Hansraj College, Delhi University. She has previously worked with CARE Ratings. At ixamBee, she is faculty for Financial and Management and Securities Market Awareness. Her expertise topics are Ratio analysis, risk management, bond valuation, etc. She is the student’s favorite faculty for her easy to understand approach while teaching in Live Classes.

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