Nostro, Vostro and Loro Account

Once you can grasp the correct terminology, understanding the rest is pretty straightforward. NRI is a Person of Indian Nationality or Origin, who resides abroad for business or vocation or employment, or intention of employment or vocation, and the period of stay abroad is indefinite. And a person is of Indian origin if he has held an Indian passport, or he/she or any of his/hers parents or grandparents was a citizen of India.

A Vostro account is an account where money is being held by an outside party. These distinctions help banks and other financial holders keep track of what is due to an investor or depositor. But in such correspondence when third bank account is referred it is said as LORO account. For example, when XYZ bank of India is maintaining an account with ABC Bank in New York USA in USD when PQR bank of India refers the said account in correspondence with XZY Bank, Now YORK it is said LORO account.

Vostro Account

The three major accounts related to foreign accounts are the Nostro account, Vostro account, and Loro account. If money is being held by you and it belongs to us, then it is a nostro account. If money is being held by us and it belongs to you, then it is a vostro account. For example if foreign bank of  USA mantains an account wirh a bank in India in rupees. Foreign Currency Account (FCA) is a transactional account denominated in a currency other than the home currency and can be maintained by a bank in the home country (onshore) or a bank in another country (offshore).

Like the article says, the bank is holding onto your money, not theirs. This article gives a very nice overview of vostro accounting. I am a banker, and I would like to add a piece of advice for investors looking into opening a vostro account. A loro account is an account seen from the vantage point of a third-party. It is not “ours” or “yours” but rather, “theirs.” A loro account is an account held by one party, administrated by a second party, and audited or assessed by an outside interest.

What do you mean by the Vostro account?

Nostro accounts are denominated in the foreign currency of the correspondent bank. In addition to these types of accounts, there is another one, again based on Latin/Italian etymology, called a “loro” account. This is also useful in talking about who owns a certain bank account. Simply, a loro account is an account maintained and serviced by a bank on behalf of an account owner bank. The term is used in international banking to denote a third party account in a domestic or foreign currency.

Operated by the Federal Reserve, the Fedwire Funds Service, often termed Fedwire in international banking, enables financial institutions to electronically transfer funds among its more than 9000 participants. Fedwire is US-based and monitors large-value or time-critical domestic and international payments. It charges small fees to recoup costs from both the participants in a given transaction.

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When that customer is another bank, since they also keep other accounts (of the money they are holding for their customers) there is a need to clearly differentiate between these two types of accounts. A vostro bank account is an account that one party is holding for another party. In a vostro account, the administrators are not actually the owners of the money.

• Foreign currency can be explained like any other currency other than home currency.
• The SWIFT Oversight Forum was established in 2012 to share information on SWIFT oversight activities among G10 and ten other central banks.
• In such conditions, a third bank’s account, which is talked about, is called a Loro account.
• The term is used in international banking to denote a third party account in a domestic or foreign currency.

From the domestic bank’s point of view, a Vostro account is just the same as any other ordinary bank account as it is payable on demand and is denoted by the same domestic currency of the country. For example, imagine that a particular USA-based bank wants to open an account in a particular India-based bank that has the currency of INR (Indian Rupees). A nostro account refers to an account that a bank holds in a foreign currency in another bank. The opposite term “vostro accounts,” derived from the Latin word for “yours,” is how a bank refers to the accounts that other banks have on its books in its home currency. For example, when a domestic bank telling to a foreign bank to transfer money to the account of a third bank or visaversa. The bank who is paying on behalf of other bank is called  correspondent banks and it is called Loro account.

What is a Vostro Account?

A Nostro account is used as a specialized, additional feature that is mostly found in the countries with the facility of convertible currencies. Banks usually tie up with third parties to enable transactions like these. The banks with Nostro facilities are also called facilitator banks. These banks are not at all similar to deposit accounts, and they demand that the deposit accounts are kept in the same currency as a bank. In this, a domestic bank acts as a custodian of the account of its foreign counterpart.

For SBI, Mumbai, its account in BOA, New York, will be termed a Nostro account, while BOA’s account with SBI will be termed a Vostro account. A Nostro account is opened by a bank with another bank on the underlying statement “My account with you”. In contrast, a Vostro account is maintained by a bank with nostro vostro loro another bank on the concept “Your account with me” or “My account of your money maintained by me”. Suppose a domestic bank (State Bank of India) opens a foreign account with Citigroup (the USA) in currency $ USD. For the SBI, this will be a Nostro account, and for Citigroup, it is a Vostro Account.

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Let us take an example of a student seeking admission to a university abroad. That particular student has a bank account with Bank of Baroda and the university has an account with Wells Fargo. It is an interbank payment system for large-value sterling payments based in the UK.

• A Vostro account is an account where money is being held by an outside party.
• This article gives a very nice overview of vostro accounting.
• For these accounts, the domestic bank is acting like a custodian or managing the accounts of a foreign counterpart.
• Or, if interest rates were higher in another country, perhaps the owner of the account could have the bank invest the money in that better performing country.
• Foreign exchange involves collecting at a centre of a given currency and then giving it to the center in a different currency.
• The word Vostro Account has been derived from an Italian word that means ‘yours.’ That is why, in an actual sense, it means your account, which is held by us.

This is similar to an individual keeping a detailed record of every payment in and out of his or her bank account so that she/he knows the balance at any point in time. Banks in the United Kingdom or the United States often hold a vostro account on behalf of a foreign bank. The vostro account is held in the currency of the country where the money is on deposit. Nostro and vostro are variations on the Latin words that mean “ours” and “yours,” respectively. Modern retail banking is derived from 13th and 14th century Italy, where both depositors and retail banks maintained ledgers of their account balances. The ledger kept by the depositing customer called it a nostro ledger; the bank kept the corresponding vostro ledger.