Words in banking are confusing, complex, and intimidating to say the least.
Vostro inward remittance may not be a familiar term, even for businesses regularly involved in remittance transactions.
So in this blog post, we break down the concept of vostro inward remittance, the process flow of vostro inward remittance, and the difference between vostro and nostro accounts for international business transfers.
Let’s dig in!
A Vostro inward remittance or Vostro payment refers to the process of receiving funds or money into a Vostro account. A Vostro inward remittance account is an account that a bank holds on behalf of a foreign bank, allowing the foreign bank to provide banking services in the local currency. In the context of inward remittance, it means funds are being transferred from a foreign bank to the Vostro account held by a local bank.
This could involve various types of transactions, such as international wire transfers, deposits, or other financial activities that result in the inflow of funds into the Vostro account.
A Vostro inward remittance account is a tool for foreign banks to engage in cross-border activities with Indian banks. In this setup, the foreign bank holds an account in the local currency of an Indian bank. The term "Vostro" means "yours," indicating it belongs to the foreign bank.
Uses of Vostro accounts:
In the context of the Reserve Bank of India (RBI), a Vostro inward remittance account has a type of Nostro/Vostro account relationship. The terms "Nostro" and "Vostro" are used in international banking to describe two sides of a banking relationship.
Vostro inward remittance Account: "Vostro" is also a Latin term meaning "yours." A Vostro account is exactly the opposite function of a Nostro account. It is an account that a foreign bank holds in the local currency of another bank (host country). The foreign bank holds this account to provide services to its clients who need to transact in the local currency.
Before sending money internationally to an Indian account, check the receiving bank's inward remittance instructions. While some banks accept direct international wire transfers, most will provide nostro/vostro details for their correspondent bank abroad. These details vary based on the sending country.
After obtaining the nostro/vostro information, make a record of the SWIFT Code and account number for the transfer. Collect recipient details, such as full name, bank account number, address, contact number, and the SWIFT code.
Pro Tip: Ensure you follow any additional instructions from the receiving bank. To avoid complications, include the RBI Purpose Code for inward remittance when initiating transfers to India. This helps in potential tax savings under the Double Taxation Avoidance Agreement (DTAA) is utilized.
The terms "Nostro" and "Vostro" are used in the context of correspondent banking to describe two sides of a relationship between two banks. Here's the difference between Nostro and Vostro accounts:
Make Note: The currency conversion rates in international bank transfers tend to be higher than the mid-market rate visible on Google searches.
Yes, the RBI allows the existence of Vostro inward remittance accounts. A Vostro inward remittance account is formed when a foreign bank maintains an account in the local currency of an Indian bank, usually within India.
Vostro accounts help in fostering banking relationships and enabling international transactions. The RBI regulates and supervises these banking activities to ensure adherence to relevant laws.
In a Vostro account arrangement, the Indian bank oversees the account on behalf of the foreign bank, allowing the foreign bank to perform local transactions and hold funds in the local currency. This setup streamlines international financial transactions, offering support to cross-border trade and commerce.
Indian central bank has permitted banks from 22 partner countries, including Russia and the UK, to create "vostro" accounts within the nation.
Banks from additional countries, including:-
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