Lowest Forex Markup. Apply Now!!
Forex

NOSTRO Account In India for international business remittance 

Nostro account is often associated with the Nostro fees that go as commission to the banks during an outward remittance from India transaction. 

What are the charges associated with the Nostro account? 

How to open a Nostro account? 

Read on to find out more

What is a  NOSTRO Account in India? 

A NOSTRO account is a type of bank account held by a bank in a foreign country, typically in the currency of that country. 

Here’s a detailed explanation within the Indian context:

  1. Purpose: NOSTRO accounts enable Indian banks to facilitate international trade and currency transactions. These accounts allow banks to operate in foreign currencies and provide services in countries where they do not have a direct presence.
  2. Functionality: For instance, an Indian bank may open a NOSTRO account in the United States in U.S. dollars with an American bank. This account allows the Indian bank to perform transactions such as payments and receipts in U.S. dollars for its customers.
  3. Usage:some text
    • Foreign Exchange Transactions: To handle operations involving foreign currencies.
    • International Trade: To process transactions related to imports and exports.
    • Cross-border Payments: To manage remittances and other international fund transfers.
  4. Accounting: The balance in a NOSTRO account is recorded in the Indian bank’s books as a foreign currency asset. The corresponding foreign bank holding the account records it as a VOSTRO account, representing the Indian bank’s funds.
  5. Example: If the State Bank of India (SBI) needs to conduct transactions in euros, it might open a NOSTRO account in euros with Deutsche Bank in Germany. This account would be used to pay a German exporter in euros on behalf of an Indian importer.

Who can open a NOSTRO account in India?

In India, the entities that can open NOSTRO accounts are primarily authorized banks, which are typically commercial banks approved by the Reserve Bank of India (RBI) to handle foreign exchange. Here’s a detailed look at who can open NOSTRO accounts:

  1. Authorized Dealers (AD) Category-I Banks:some text
    • These banks are authorized by the RBI to engage in foreign exchange transactions and offer various foreign exchange services. Examples include major commercial banks like State Bank of India (SBI), HDFC Bank, and ICICI Bank.
    • Such banks can open NOSTRO accounts in other countries to facilitate their clients' foreign exchange transactions.
  2. Other RBI-Authorized Entities:some text
    • In certain instances, other financial institutions or specialized entities permitted by the RBI to deal in foreign exchange may also open NOSTRO accounts. This is less common and usually pertains to specific financial institutions with unique roles.

Which banks have NOSTRO accounts in India?

Numerous banks around the globe, including those in India, maintain NOSTRO accounts to support international transactions. In India, the banks typically holding NOSTRO accounts include:

  1. Major Public Sector Banks:
    • State Bank of India (SBI)
    • Bank of Baroda
    • Punjab National Bank (PNB)
    • Canara Bank
    • Union Bank of India
  2. Prominent Private Sector Banks:
    • HDFC Bank
    • ICICI Bank
    • Axis Bank
    • Kotak Mahindra Bank
    • Yes Bank
  3. Foreign Banks with Operations in India:
    • Citibank
    • HSBC (Hongkong and Shanghai Banking Corporation)
    • Standard Chartered Bank
    • Deutsche Bank
    • JPMorgan Chase Bank

What is an example of a Nostro account in India?

In the context of international business and outward remittance from India, a NOSTRO account plays a vital role in facilitating these transactions. Here’s an example to demonstrate how a NOSTRO account functions:

Example: Imagine an Indian company, ABC Exports Pvt. Ltd., needs to pay a supplier in the United States for imported goods. ABC Exports holds an account with State Bank of India (SBI).

  1. Transaction Initiation:
    • ABC Exports instructs SBI to transfer USD 50,000 to the supplier's bank account in the United States.
  2. Using the NOSTRO Account:
    • SBI has a NOSTRO account in the United States with JPMorgan Chase Bank, which is denominated in USD. This account contains funds in USD specifically for international transactions.
  3. Fund Transfer Process:
    • SBI debits INR 3,750,000 (assuming an exchange rate of 1 USD = 75 INR) from ABC Exports' account in India.
    • SBI then utilizes its NOSTRO account with JPMorgan Chase Bank to transfer USD 50,000 to the supplier's bank account in the United States.
  4. Settlement:
    • The supplier’s bank in the United States credits the supplier’s account with USD 50,000, completing the payment process.

Can a person have a Nostro Account?

No, individuals cannot possess NOSTRO accounts. Here's a more detailed explanation:

  1. Purpose: NOSTRO accounts are employed by banks to execute transactions in foreign currencies. They enable banks to administer their foreign exchange activities and provide international banking services to their customers.
  2. Eligibility for Holding a NOSTRO Account: Only banks and authorized financial institutions are eligible to hold NOSTRO accounts. These accounts are not accessible to individual customers.
  3. Functionality: A NOSTRO account empowers a bank to process international payments and receipts, uphold liquidity in foreign currencies, and support the banking requirements of their clients engaged in global business endeavors.

In which currency is the Nostro account available?

In the context of business outward remittance from India, NOSTRO accounts are typically available in major foreign currencies that are commonly used for international transactions. These currencies are selected to facilitate seamless outward remittances for businesses engaged in global trade and investment. Here's how NOSTRO accounts are relevant in this context:

  1. US Dollar (USD): As the primary currency for international trade and finance, USD-denominated NOSTRO accounts are crucial for businesses in India conducting outward remittances to the United States or engaging in trade with USD as the settlement currency.
  2. Euro (EUR): EUR-denominated NOSTRO accounts are essential for businesses involved in trade with European countries or making payments in euros for various transactions.
  3. British Pound (GBP): GBP-denominated NOSTRO accounts facilitate outward remittances to the United Kingdom and transactions involving GBP as the preferred currency.
  4. Japanese Yen (JPY): JPY-denominated NOSTRO accounts support businesses conducting trade with Japan or making payments in yen for specific transactions.
  5. Other Major Currencies: NOSTRO accounts may also be available in other major currencies such as Swiss Franc (CHF), Canadian Dollar (CAD), Australian Dollar (AUD), and Chinese Yuan (CNY) to cater to the diverse needs of businesses engaged in international trade and investment from India.

What is the difference between NOSTRO and VOSTRO account?

NOSTRO vs VOSTRO Accounts

NOSTRO vs VOSTRO Accounts

Aspect NOSTRO Account VOSTRO Account
Description A NOSTRO account is maintained by an Indian bank in a foreign bank's branch, denominated in the foreign currency. A VOSTRO account is held by a foreign bank in an Indian bank, denominated in Indian Rupees (INR).
Ownership Owned by the Indian bank. Owned by the foreign bank.
Purpose Facilitates outward remittances and manages foreign currency transactions on behalf of the Indian bank's clients. Receives inward remittances from the Indian bank's clients, which are converted into INR and credited to the VOSTRO account.
Transactions Handles outbound transfers from India to the foreign country where the NOSTRO account is located. Receives inbound transfers from the Indian bank's clients, converted into INR and credited to the VOSTRO account.
Currency Denominated in the currency of the foreign country. Denominated in Indian Rupees (INR).
Example Indian Bank A holds a NOSTRO account in USD with Bank X in the United States. Bank X in the United States holds a VOSTRO account in INR with Indian Bank A.

FAQs on NOSTRO account in India

Can I open a Nostro account online?

No, individuals generally cannot open a NOSTRO account online. These accounts are specialized and primarily used by banks and financial institutions to manage international transactions and foreign currency operations. The process involves complex procedures such as compliance checks and regulatory approvals, typically not available through online channels for individual customers.

Do Indian banks use IBAN?

In India, banks do not adopt the IBAN (International Bank Account Number) as a standard method for account identification. Unlike European and certain other countries where IBAN is prevalent, Indian banks rely on alternative identifiers like the Indian Financial System Code (IFSC) and the account number for facilitating both domestic and international transactions.

How much does a Nostro account cost?

The cost of a NOSTRO account varies depending on bank policies, transaction volumes, and agreements with correspondent banks abroad. Fees may include account maintenance, foreign exchange transactions, and wire transfers. These costs are typically covered by the bank and may indirectly affect customers through fees for international transactions. For precise details, it's best to contact the bank directly.

The views expressed in the blogs on this page are solely the opinions of the authors and do not constitute expert advice. While we strive to provide accurate and up-to-date information, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the website or the information, products, services, or related graphics contained on the website for any purpose. Any reliance you place on such information is therefore strictly at your own risk. We disclaim any liability for any loss or damage including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from loss of data or profits arising out of, or in connection with, the use of this website.

Similar posts

Discover Related Reads

Get a Free Forex Quote Today!

Save Money on Your Next International Transaction
Get a Quote