What is difference between Vastro and Nastro Account?

The bank account that a domestic bank maintains with a foreign bank
in a foreign country and in that foreign country’s currency is Nostro,
whereas the same account held by a foreign bank in the domestic
currency is called Vostro

Suppose a domestic bank (State Bank of India) opens a foreign

account with Citigroup (the USA) in currency $ USD. For the SBI, this
will be a Nostro account, and for Citigroup, it is a Vostro Account

Importance of Vostro Account

 This account serves as an economic way for small

domestic banks to access the financial resources and
services of a larger foreign bank.
 Enables one to offer international banking solutions to a
customer without opening a bank branch in a foreign
nation.  It minimizes the time for transfer of funds.
 Closely monitored nostro accounts can be used for better
reconciliation of statements.
 Advantages of Vastro and Nastro account?

They help in executing large foreign exchange

transactions without having any physical presence in
other countries.

 They enable banks to keep funds in foreign

currency without any exchange rate risk.

 It is easy to operate since it is a mere transfer of

funds from one account to another in the same bank

Disadvantages of Vostro and Nostro Accounts

 A lesser rate of interest as compared to savings or

current account.

 It is generally more expensive since it is a facility

provided by the home bank to execute foreign exchange
transactions smoothly.

 Rigorous regulations and laws are imposed for the

operation of these accounts
 RBIs Directions Related to Rupee
Vostro and Nostro Accounts
 As per the Regulation 7(1) of
Foreign Exchange Management
(Deposit) Regulations, 2016, AD
(Authorized Dealer) banks in India
have been permitted to open Rupee
Vostro Accounts .

 Accordingly, for settlement of trade transactions with any country, AD

bank in India may open Special Rupee Vostro Accounts of correspondent
bank/s of the partner trading country.

o AD Banks are commercial banks, state co-operative banks and urban

cooperative banks that are authorized by the RBI under Foreign Exchange
Management Act, 1999 (“FEMA”) to deal in foreign exchange transactions,
be it current account or capital account
 What is Nastro account?

It is derived from the Italian word

Nostro account meaning ‘Our’.
NOSTRO ACCOUNT is an account
maintained in a foreign country’s
bank in the denomination of that
foreign country by any country’s
banks to settle the foreign exchange
transactions between both countries.

What is vostro account?

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. Vostro
accounts are maintained in the domestic country.