VOSTRO ACCOUNTS

2. About Vostro account

• A Vostro account is an account that a domestic bank holds for a foreign bank in the domestic bank’s currency which, in the case of India, is the rupee.
• The RBI allowed nine such accounts, including IndusInd Bank and Uco Bank.
• In the case of trade with Russia, payments in rupee for the export and import of goods will go to these Vostro accounts.
• The owners and beneficiaries of this money will be the exporters and importers in both countries.
• The banks will keep a record of money transferred.

3. About Nostro account

• Two kinds of accounts, Vostro and Nostro, are often mentioned together.
• Both Vostro and Nostro are technically the same types of accounts, 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.
• The account opened by the Indian bank in the US will be a Nostro account for the Indian bank, while for the US bank, the account will be considered a Vostro account.

4. Need for the Vostro accounts

• On July 11, the RBI put in place a mechanism to settle international trade in rupees “to promote the growth of global trade with emphasis on exports from India and to support the increasing interest of the global trading community in the rupee”.
• The central bank’s move has come in the wake of increasing pressure on the Indian currency in the wake of Russia’s invasion of Ukraine and sanctions by the US and the EU.
• According to the central bank, AD (authorized dealer) banks in India have been permitted to open rupee Vostro accounts.
• Accordingly, for settlement of trade transactions with any country, an AD bank in India may open special rupee Vostro accounts of correspondent banks of the partner trading country.

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