INDIAN BANKS ACCOUNTS WITH FOREIGN BANKS

Presented by: P Ram Deepak varma Reg no: 092601141 Group: C 3

Introduction:
A bank account held in a foreign country by a domestic bank, denominated in the currency of that country is known as nostro account. Nostro accounts are used to facilitate settlement of foreign exchange and trade transactions.

The term is derived from the Latin word for "ours.

Conversely, accounts that are held by the domestic bank in its home country for foreign banks are called vostro accounts, derived from the Latin word for "yours."

For Example:
a U.S. bank may have nostro accounts with one or more Canadian banks. These accounts will be denominated in Canadian dollars, which enables efficient settlement of transactions that are Canadian dollar denominated. Nostro accounts also minimize the exposure of the U.S. bank to undue exchange rate risk.

Applications:
Banks maintain accounts with other banks (Nostro Accounts) and it is necessary for them to reconcile Ledger Account Statements with the Nostro Account Statements. As the number of items on a statement increases, so do the associated financial and human resource costs in the reconciliation process. ReconBanc is an effective yet easy to use system which allows banks to automate the Nostro Reconciliation process as well as providing tools to assist banks in resolving outstanding items. In addition, ReconBank will allow users the flexibility to tackle unexpected situations such as sudden growth in transactions, staff shortages, changes in statement formats etc. SWIFT messages formats and rules, etc.

Unlimited Nostro Accounts : There is no limit to the number of Nostro Accounts that can be processed.

Unlimited Currencies There is no limit to the number of currencies in which Nostro Accounts can be held.

Advantages:
enables to keep cash in foreign currency. reduces the risk involved in conversion rates of currencies. easy payments to foreign sellers.

Difference between Nostro and Vostro Account:

Vostro Account: Account held by a foreign bank in a domestic bank is called vostro account. For example UBS of Switzerland opening an account in SBI in India, this is vostro account for SBI India.

Nostro Account: Account held by a particular domestic bank in a foreign bank is called Nostro account. Here in the above example given in Vostro account the same account is a Nostro account for UBS Switzerland, or if SBI India opens an account in UBS Switzerland then that account is a Nostro account for SBI India. Nostro accounts are usually in the currency of the foreign country. This allows for easy cash management because currency doesn't need to be converted.

Conclusion:
A bank counts a nostro account with a credit balance as a cash asset in its balance sheet. Conversely, a vostro account with a credit balance (i.e. a deposit) is a liability, and a vostro with a debit balance (a loan) is an asset. Thus in many banks a credit entry on an account is regarded as negative movement, and a debit is positive - the reverse of usual commercial accounting conventions.

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