NOSTRO, VOSTRO, LORO Accounts

A Loro account is a combination of an ordinary and a Nostro account. Let us take an example of a student seeking admission to a university abroad. That particular student has a bank account with Bank of Baroda and the university has an account with Wells Fargo.

• Once the money gets into Bank of America’s Vostro account they will transfer the same to that American merchant.
• Thus in many banks a credit entry on an account (“CR”) is regarded as negative movement, and a debit (“DR”) is positive – the reverse of usual commercial accounting conventions.
• Thus, we can see that Nostro account is the opposite of the Vostro account and vice versa.
• Let us take an example of a student seeking admission to a university abroad.
• For example, an American merchant is providing consultancy services to an Indian company.

Nostro translated from Latin means “ours,” as in our accounts. Nostro accounts are denominated in the foreign currency of the correspondent bank. To overcome the issue, the best and easiest way for the bank would be to maintain some trading accounts with other banks globally. These accounts are termed ‘Nostro’ and ‘Vostro’ accounts based on the Italian words for ‘our’ and ‘your’ respectively. Nostro accounts are generally held by a foreign bank in a foreign country where the domestic bank does not have its own bank branch. Every bank maintains a replica of its Nostro account with a foreign bank in its own bank.

Difference between Nostro and Vostro

Modern retail banking is derived from 13th and 14th century Italy, where both depositors and retail banks maintained ledgers of their account balances. The ledger kept by the depositing customer called it a nostro ledger; the bank kept the corresponding vostro ledger. Its main tasks include issuance, transfer and settlement for all marketable treasury securities for many federal government agencies and GSE securities, as well as for certain international organisations’ securities. It also offers electronic storage of securities holding records in custody accounts. The market gets a huge boost with cross-border trade activities relating to tourism, mergers and acquisitions (M&A), etc.

• Foreign Currency Account (FCA) is a transactional account denominated in a currency other than the home currency and can be maintained by a bank in the home country (onshore) or a bank in another country (offshore).
• These rates are often used to determine interest on various accounts held by third parties, or Vostro accounts.
• For example, an Indian company is doing business with a company in America.
• The SBI account with HSBC when used by BOI for transactions in the UK is known as a Loro account.
• It also widely directs an increasing volume of US domestic payments.

For example, XYZ bank of USA maintains an account with a Bank in India in Indian Rupee such account maintained in the foreign currency at foreign center by Foreign bank is said as ‘Vostro Account’. So, the ‘Vostro Account’ of the foreign bank with Indian bank in India is said as ‘YOUR Accounts with Us’. The term vostro translated from Latin means “yours,” as in your account. From the correspondent bank’s point of view, the funds held on the behalf of other banks are referred to as vostro accounts and are denominated in the local currency. Nostro Account Home Currency of one country is foreign currency for other country.

Nostro and vostro accounts

This kind of relationship makes both of them correspondent banks, which means that customers of a domestic bank can use services like money withdrawal, money transfer, or deposit funds in the corresponding bank. Managing or holding a Vostro account often comes with a fee. The word Vostro Account has been derived from an Italian word that means ‘yours.’ That is why, in an actual sense, it means your account, which is held by us. From the domestic bank’s point of view, a Vostro account is just the same as any other ordinary bank account as it is payable on demand and is denoted by the same domestic currency of the country. For example, imagine that a particular USA-based bank wants to open an account in a particular India-based bank that has the currency of INR (Indian Rupees).

Such an account is maintained for the bank’s own books and for operational purposes in the local currency. The term ‘mirror’ indicates the purpose of a Mirror account. It maintains complete accounting of all inflows and outflows of forex taking place in a Nostro account of the bank. Unlike Nostro accounts, these types of accounts are not confined or restricted to banks; they can be used by any other entity if they want to use them. The motive that lies behind a Vostro account is the need for the entities and banks to gain a physical presence in all the countries. For example, a bank that operates in the United Kingdom or any other country will also want to be able to work in other countries like China, Spain, Japan, the United Kingdom, and other parts of the world.

What do you mean by Nostro account?

For example, an Indian company is doing business with a company in America. Now the Indian company wants to seek payment for the services rendered to the American Company. The Indian company has an account in the State Bank of India while the American company has an account with Wells Fargo. So now that American Company would instruct their bankers (Wells Fargo) to deposit money in State Bank of India’s Nostro account. Once the money is received in State Bank’s Nostro account the Indian company would be informed and their account will get credited for the same.

Conversion of foreign currency in to home currency is the fundamental of foreign exchange. Therefore, in order to put through the foreign exchange transaction, the bank which is authorized to deal in foreign exchange, maintains an account with its overseas Bank to keep stocks of foreign currencies. Normally, such account is a current account in the books of the overseas Bank. So, the ‘Nostro Account’ of the Indian bank with its branch/correspondents in USA is said as ‘Our Accounts with You’.

What is International Banking? Definition, Types, Authorised Dealers

The banks with Nostro facilities are also called facilitator banks. These banks are not at all similar to deposit accounts, and they demand that the deposit accounts are kept in the same currency as a bank. Besides situations where banks hold money for individual customers, a Nostro account can be useful in Forex exchange trading or in interbank situations. Interbank deposits can involve changing money into foreign currency denominations for various financial purposes. In national or regional markets, an interbank offered rate reflects a prime lending rate between banks.

Therefore, Banks generally use Nostro Account to make any transaction with other parties in a foreign country where there is no physical presence, and in foreign currency. A vostro account is a record of money held by a bank or owed to a bank by a third party (an individual, company or bank). From GTBank’s perspective, its U.S. dollar account with Citibank is a nostro account. From Citibank’s perspective, it is holding a vostro account for GTBank in U.S. dollars.

VOSTRO Account / NOSTRO Account

A Loro account is an account held by a foreign bank in a foreign currency with one domestic bank on behalf of another domestic bank.For example, SBI maintains an account with HSBC bank in UK. Bank of India (BOI) doesn’t have any account with HSBC, UK. The SBI account with HSBC when used by BOI for transactions in the UK is known as a Loro account.

The account of the State bank of India was held with the bank of America in dollars. In simple words, if there is any bank in India that opens an account to deal with transactions with a foreign bank, it will be called a Nostro nostro vostro loro Account. A Nostro account is used as a specialized, additional feature that is mostly found in the countries with the facility of convertible currencies. Banks usually tie up with third parties to enable transactions like these.

It gets its IT infrastructure support from the Bank of England (BOE). It is the same day automated payment system, which is used for high-value payments. Nostro accounts can be opened by authorized national banks only. Now, when the Indian Bank deposits the AU$ in its Nostro Account, the Australian Bank credits the Nostro Account of the Indian Bank.

In some cases, the facilitator bank may not be a primary clearing member but they will have the ability to make payments in local currency, possibly through another bank in the same country. Nostro and vostro (from Italian, nostro and vostro; English, ‘ours’ and ‘yours’) are accounting terms used to distinguish an account held for another entity from an account another entity holds. Nostro and vostro are variations on the Latin words that mean “ours” and “yours,” respectively.

Vostro Account

This money deposited will then be transferred by Citibank via SWIFT to GTBank’s U.S. dollar account in Nigeria. SWIFT refers to the Society for Worldwide Interbank Financial Telecommunications, a member-owned cooperative that offers safe and secure financial transactions for its members. With the transfer complete, GTBank receives the dollar-denominated funds, converts them into the local currency (i.e., the naira), and deposits them to the local accounts of the recipients. The Mirror account pools funds in the local currency from different Nostro accounts maintained in different currencies with different foreign banks at different locations. The pooling of funds helps the customer earn higher interest returns or minimise the use of operating bank credit lines through inter-entity lending.

Fedwire is US-based and monitors large-value or time-critical domestic and international payments. It charges small fees to recoup costs from both the participants in a given transaction. Bank A here wants to transfer money from country ‘B’ to its people. Now, this is called the ‘Nostro account’ from country A’s point of you. And since country ‘B’ maintains an account of a foreign bank in its home currency, i.e., ‘B’ currency, this will be a ‘Vostro account’ from country B’s point of view.

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