Introduction to Nostro Account
A Nostro account is held by one bank in another bank in its home currency. This process is withheld in order to simplify foreign exchange and trading transactions.
Understanding Nostro Account
A bank ‘A’ in India has an account with Bank ‘Q’ in Australia, for example. And the currency in bank A’s bank account in Bank Q is maintained in Australian Dollars. This account with Bank Q is what is called a Nostro Account for Bank A. Such accounts are most commonly seen in Exim related banks that oversee a lot of overseas transactions and in large amounts. Due to the existence of a Nostro account, transactions within the country initiated by bank A become simpler, just as if it’s a regular transfer of funds from one account to another. Bank Q will facilitate these transactions in home currency. This process saves a lot of hassle. Suppose the entity opening the account or the bank (A) itself doesn’t have a physical presence in another country (Australia in this case), it can still open an account and carry out necessary transactions.
Highlights of Nostro Account
- The other side to the Nostro Account, from the perspective of Bank Q, is called a Vostro account. From Bank Q’s point of view, a vostro account is an account opened by foreign entity that keeps and maintains balance in the said account. ‘Your account’ in Bank Q, as ‘vostro’ stands for.
- Nostro account is an additional, specialized feature usually found in countries with convertible currencies, though where there are no convertible currencies, banks tie up with third parties to enable 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/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.
