Introduction to NOSTRO Account
A NOSTRO account is held by one bank in another bank in its home currency. This process simplifies foreign exchange and trading transactions.
Understanding NOSTRO Account
Let’s say, a Bank ‘A’ in India holds an account with Bank ‘Q’ in Australia. The account is maintained in Australian Dollars, which is the home currency of Bank Q. This arrangement is commonly used by banks involved in significant overseas transactions, such as Exim (export-import) banks.
Such accounts make international transactions seamless for Bank A, as they can be processed similarly to domestic transfers. Bank Q facilitates transactions in its home currency, reducing complexities and saving time. Even if Bank A doesn’t have a physical presence in Australia, it can open a NOSTRO account to perform necessary transactions.
Highlights of NOSTRO Account
- From the perspective of Bank Q, the same account is referred to as a VOSTRO account. VOSTRO, meaning “your account” denotes an account held by a foreign entity (Bank A) in Bank Q.
- NOSTRO accounts are typically found in countries with convertible currencies. In cases where currencies are not convertible, banks partner with third-party institutions to facilitate such transactions.
- Because it is an additional feature, banks with NOSTRO facilities charge some maintenance fees that may be overly expensive.
- The banks providing the NOSTRO or VOSTRO facility are called facilitator banks.
- NOSTRO accounts are not similar to deposit accounts— these demand deposit accounts are held in the currency of bank A’s existence, whereas NOSTRO account holds the balance in the currency of bank Q’s presence.
