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Nostro Account and Vostro Account
Nostro Account :
Nostro in latin means OURS. In this sense, Nostro Account means OUR Account with you. Nostro is a current account that a bank holds with a bank in a foreign country. Such accounts are operated in the currency of that foreign country.
A bank account held in a foreign country by a domestic bank, denominated in the currency of that country. Nostro accounts are used to facilitate settlement of foreign exchange and trade transactions. The term is derived from the Latin word for “ours.”
For example, if you live in India and ask you local bank to set up a Euro account for you, they will most likely open a”Nostro Account” with a correspondent agent bank in the European Union that they have a banking relationship with for that specific purpose. The Euro bank will set up the account, but it is not a typical checking account. These accounts are treated differently on the books of the bank. Transactions to and from these accounts may only be wire transfers to ensure identity credentials are monitored and that special handling is used. Generally, companies will use these types of accounts when they often either buy or sell in another country but do not have a physical presence that would afford them usage of a typical checking account arrangement.
It is the account which is held by a foreign bank with a local bank.
Nostro accounts are mostly commonly used for currency settlement, where a bank or other financial institution needs to hold balances in a currency other than its home accounting unit.
For instance UBS of Switzerland opening an account in SBI in India, this is vostro account for SBI India.
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