Nostro Account

Definition

If your Bengaluru startup is paying a US-based SaaS vendor $5,000 monthly, have you ever wondered how those dollars actually move? Your bank in India doesn't have a vault full of US currency. Instead, it maintains a dollar-denominated account with a bank in the US, say, SBI has an account with Citibank in New York. That's a Nostro account, from the Latin "noster" meaning "ours." It's SBI's money, held in Citibank's books. When you make that $5,000 payment, SBI's Nostro account gets debited and the vendor's account gets credited through the US banking system.

The terminology is perspective-dependent. From SBI's perspective, it's a Nostro account ("our account with you"). From Citibank's perspective, the same account is a Vostro account ("your account with us"). Together, these mirrored accounts form the backbone of correspondent banking, the system that makes international trade finance possible. Indian banks maintain Nostro accounts in all major currencies: USD, EUR, GBP, JPY, AED, SGD. Without them, every cross-border payment would require physically moving currency between countries.

The compliance layer is substantial. RBI requires authorised dealer banks to reconcile their Nostro accounts regularly under FEMA, 1999, and report large outstanding items. Unreconciled Nostro entries represent foreign currency exposure, essentially money that's in limbo. For GST, the service charges and forex conversion margins applied on Nostro account operations follow RBI-prescribed exchange rates. And given that cross-border payments are a prime vector for money laundering, anti-money laundering controls on Nostro transactions must be rigorous, particularly for jurisdictions flagged by FATF as high-risk. Most finance teams we've worked with never see this infrastructure directly, but it's what makes their international payments work.

Key Points

• A Nostro account is an Indian bank's foreign-currency account held with a foreign bank: "our account with you."
• The same account from the foreign bank's side is called a Vostro account: together they enable correspondent banking.
• SWIFT messages instruct debits and credits between Nostro and Vostro accounts for every cross-border payment.
• Indian banks maintain Nostro accounts in USD, EUR, GBP, JPY, AED, SGD, and other currencies for trade finance.
• RBI mandates regular Nostro reconciliation under FEMA: unreconciled entries represent currency exposure and compliance risk.
• AML controls must be particularly rigorous for Nostro transactions involving high-risk FATF-flagged jurisdictions.