Vostro Account

Subject: Economy

Why in the news?

The government announced that nine special Vostro accounts have been opened with two Indian banks after permission from the RBI.

Details:

It aims to facilitate trade in rupee in the wake of sanctions on Russia.

Vostro account?

A Vostro account is an account that a domestic bank holds for a foreign bank in the domestic bank’s currency — rupee.
In the case of trade with Russia, payments in rupee for the export and import of goods will go to these Vostro accounts.
- A vostro account is established to enable a foreign correspondent bank to act as an agent or provide services as an intermediary for a domestic bank.
The owners and beneficiaries of this money will be the exporters and importers in both the countries.
The banks will keep the record of money transferred.
Vostro account services include executing wire transfers, performing foreign exchange transactions, enabling deposits and withdrawals, and expediting international trade.
- For example, if a Spanish life insurance company approaches a U.S. bank to manage funds on the Spanish life insurer’s behalf, the account is deemed by the holding bank as a vostro account of the insurance company.

Nostro account?

Both Vostro and Nostro are technically the same type of account, with the difference being who opens the account and where.
So, if an Indian bank like the SBI wants to open an account in the United States, it will get in touch with a bank in the US, which will open a Nostro account and accept payments for SBI in dollars.
It will be a Nostro account for the Indian bank, while for the US bank, the account will be considered a Vostro account.
- Nostro means ‘ours’ and Vostro means ‘yours’ in Latin.

What led to creation of the Vostro accounts?

The RBI has recently put a mechanism to settle international trade in rupees–promote growth of global trade and exports from India in the rupee.
According to which –for settlement of trade in rupee with any country, an Authorised Dealer bank in India may open special rupee Vostro accounts of correspondent banks of the partner trading country.