Vostro Account

In the world of international banking, transactions between different countries require a secure and efficient system. To support such transactions, banks maintain special types of accounts with one another. One such account is called a Vostro account.

In Latin, the word “Vostro” means “Your“. A Vostro account An account that a foreign bank holds in the local currency with a domestic bank.

This type of account plays a crucial role in facilitating cross-border trade and finance, particularly when one bank needs to manage funds in a foreign currency on behalf of another bank.

Purpose of a Vostro Account

A Vostro account is a type of account that a foreign bank holds with a domestic bank, in the domestic bank’s local currency. It is used by the foreign bank to conduct transactions and manage money within the domestic country. This account helps simplify the process of receiving and making payments in the local currency for the foreign bank’s customers or its purposes.

In simpler terms, it allows a foreign bank to operate in another country without physically being present there. It enables the settlement of trade payments, remittances, and other banking operations efficiently.

Example

Let’s say Bank A is based in the United Kingdom and Bank B is based in India. If Bank A wants to provide services in Indian Rupees (INR) for its clients, it can open a Vostro account with Bank B in India.

In this case, Bank B will maintain a Vostro account in INR on behalf of Bank A. Whenever Bank A’s clients need to make payments in India, the transactions will be processed through this Vostro account, allowing smooth and timely payments without the need for physical presence or direct currency exchange each time.

 

Differences Between Nostro and Vostro Accounts

Some of the differences are as follows:

	Nostro Account	Vostro Account
Definition	An account that a domestic bank holds in a foreign bank in the foreign currency.	An account that a foreign bank holds in a domestic bank in the domestic currency.
Meaning	“Ours” account with you	“Yours” account with us
Currency	Foreign currency	Domestic currency
Maintained By	Domestic bank in a foreign bank	Foreign bank in a domestic bank
Usage	Used to make transactions in foreign countries	Used to receive and make payments on behalf of foreign banks
Example	Indian Bank maintains a USD account with a US Bank	US Bank maintains an INR account with an Indian Bank