Vostro vs Nostro Meaning, Difference, and Examples

Vostro vs Nostro: International deals have become an integral part of everyday banking. It is not uncommon for banks to work with foreign currencies and overseas branches. For these transactions, two types of accounts are often used – Vostro and Nostro. They help banks in payments, transfers, and settlements around the world.

Vostro and Nostro accounts mainly differ in their ownership and the currency in which the account is kept. Both are equally important for the smooth flow of foreign trade and currency exchange between local and foreign banks. Understanding the Vostro vs Nostro comparison is fundamental to learn about global banking systems.

Vostro Account Meaning

Vostro Account means, the account that is held by a foreign bank with a domestic bank, in domestic country’s currency. The term means “your account with us”. 

For example, a bank from a foreign country (USA) is having an account with domestic bank (India). For the Indian bank, this account is known as a Vostro Account. The balances in this account are in INR (Indian currency). Vostro Account meaning has a lot to do with the method with which the local banks keep the money for foreign banks in their country. They can easily do the transfer and settlements of cross-border transactions.

In banking terms, Vostro is a Latin word for “yours”. The account is thus assumed as the money of foreign bank.

Example: If Bank of America (USA) opens an account with State Bank of India, then for SBI it is a Vostro Account, as it has the money of a foreign bank in Indian currency.

Nastro Account Meaning

Nostro Account stands for our account with you (which bank holds), an account that a domestic bank holds in a foreign bank’s currency with a foreign bank. It is an account that a bank holds in a foreign country in foreign currency.

For example, if the State Bank of India has an account with the Bank of America in the USA; then that account for SBI is a Nostro Account. The money in this account will be in the currency of the foreign country, in this case, USD.

Nostro Account Meaning is that the Indian bank can process foreign transactions. It is made convenient for the customers to receive or send payments in foreign currencies without facing any delay.

The term is derived from a Latin word, “Noster” which means “ours.” Hence, the account will be the money or the funds held by the foreign bank on behalf of the domestic bank.

Example: If SBI is holding its money with Bank of America, then it is a Nostro Account for SBI and a Vostro Account for Bank of America.

Difference Between Vostro and Nostro Accounts

The difference between Vostro and Nostro is that Vostro account has a foreign currency and ownership of one bank and is maintained by another bank, while Nostro account has a domestic currency and ownership and is maintained by another bank. It is very common for international banks to get confused during foreign currency transaction without understanding the difference between Vostro and Nostro account.

Importance of Vostro and Nostro Accounts in Banking

The vostro vs nostro account system is important for currency exchange and international trade. This system of accounts help banks: 

• Make international payments and settlements 

• Allow the import and export transaction between countries

• Hold their foreign exchange reserve safely 

• Allow easy exchange between one currency and another

For banks that do international transactions, they cannot work without them and this system of accounts. It allows them to have good financial relationships and smoother business with other countries.