NOSTRO Account: What it is and How it Works for International Transactions
Most Indian freelancers, exporters, and even startups have never heard of a Nostro account. Yet this behind-the-scenes banking mechanism quietly affects how fast you get paid from abroad, what fees get deducted, and how smooth your compliance documentation (like FIRA/eBRC) process is.
In this article, we’ll break down in plain English what a Nostro account is, how it works, and why it matters when you’re receiving money from overseas.
What Is a Nostro Account? (Meaning in Banking)
A Nostro account is essentially a foreign currency bank account that one bank holds in another country’s bank. In other words, it’s “our account” held with your bank in your country’s currency.
For example, an Indian bank like HDFC might hold a USD account with Citibank in the U.S.; that USD account is HDFC’s Nostro account (from HDFC’s perspective). It allows HDFC to park and move funds in U.S. dollars abroad on behalf of its customers. From Citibank’s perspective, the same account is called a Vostro account (since it’s “your account” in their books) (We’ll focus on Nostro here; Vostro is basically the flip side, which we cover in another blog.)
In simple terms, a Nostro account lets banks handle foreign currency transactions without needing a physical presence in that foreign country. It’s how your Indian bank can send/receive dollars, euros, etc., even though you don’t hold those currencies yourself. The bank uses its Nostro accounts with correspondent banks abroad to do that. This is a common practice in international banking, forming the backbone of correspondent banking networks.
Who Can Open a Nostro Account?
Only banks (and authorised financial institutions) can open Nostro accounts. Individuals or normal businesses cannot open one directly. In India, RBI-authorised banks (known as AD Category-I banks, e.g. SBI, HDFC, ICICI) maintain Nostro accounts in major foreign currencies to facilitate their customers’ international transactions. You, as a freelancer or company, do not need to open a Nostro account yourself; your bank handles that behind the scenes.
How Does a Nostro Account Work? (Step-by-Step Example)
Let’s illustrate how a Nostro account functions with a simple example:
Scenario: Ramesh is a freelance consultant in India, and his client John in the USA wants to pay him $1,000 for a project. Ramesh uses HDFC Bank in India to receive the payment.
Here’s what happens behind the scenes when John pays Ramesh $1,000:
Payment Initiation: John sends $1,000 from his U.S. bank (say, Citibank) to Ramesh’s account. This international payment (often via a SWIFT wire) is not sent directly to Ramesh’s INR account. Instead, it’s directed to HDFC Bank’s USD Nostro account in the USA (for example, HDFC’s Nostro with Citibank)
Funds Received in Nostro: The money lands in HDFC’s USD Nostro account at Citibank. Essentially, Citibank credits HDFC’s account on its books with $1,000 on behalf of Ramesh. HDFC now has an extra $1,000 in its U.S. account.
Confirmation & Transfer to India: HDFC Bank gets confirmation of the credit in its Nostro account. It will then transfer the funds from the Nostro account to India (often through internal networks or the SWIFT system) to convert and credit Ramesh’s local account. (In practice, this may involve HDFC instructing Citibank to send the $1,000 to HDFC’s account in India or adjusting balances accordingly.)
Currency Conversion: Before crediting Ramesh, HDFC converts the USD 1,000 into Indian Rupees. They use the prevailing exchange rate on that day. For example, if the rate is ₹82 per USD, the $1,000 would convert to ₹82,000 (minus any applicable charges or FX margin the bank applies).
INR Credit to Ramesh: Finally, HDFC credits Ramesh’s local INR account with the converted amount (around ₹82,000 in this example). Ramesh sees the payment in rupees in his account statement. The original $1,000 never directly touched Ramesh’s hands – it was handled by HDFC’s Nostro account abroad and then exchanged to INR for him.
Throughout this process, Ramesh didn’t need to deal with foreign banks or hold a dollar account. HDFC’s Nostro account in the U.S. acted as the receiving bucket for the dollars and took care of conversion. This is how you receive foreign client payments seamlessly into your Indian bank account without any foreign currency account of your own.
Key points: The use of Nostro accounts means the payment often travels through the international banking network (e.g. via SWIFT) to the Indian bank’s correspondent account, then to your account. Every major Indian bank has such Nostro tie-ups to handle remittances from different countries/currencies.
Why Nostro Accounts Matter (Benefits for Freelancers, Exporters & Businesses)
Even though you don’t manage the Nostro account yourself, it has important implications for your international payments. Here’s why Nostro accounts matter for anyone receiving money from abroad in India:
- Faster Settlements with Fewer Delays: Because Nostro accounts are pre-established correspondent links, your payment doesn’t have to hop through numerous intermediary banks. Fewer “hops” mean fewer delays or chances for information to get lost.
In contrast, if a bank lacks a direct Nostro in a given currency, the transfer might ping through multiple banks – each hop adds delay and fees, often making wire transfers take 2–5 days. A good Nostro network can cut this down, sometimes to same-day or next-day settlements.
In short, Nostro accounts provide a more direct route, reducing the “travel time” for your money and the risk of it getting held up en route. - Fewer Hidden Fees: Each intermediary bank in a chain may deduct a fee for handling the transfer (often called lifting charges). By using a Nostro account (a direct relationship), the payment avoids multiple intermediaries, reducing the cumulative fees. In the traditional model, “everyone along the chain takes a fee” , which is why you might send $1,000 and only see, say, $980 after all deductions. Nostro-linked transfers minimise those surprises. (Your bank might still charge a remittance fee or add an exchange margin, but there are fewer random cuts by unknown banks.)
- Regulatory-Compliant Route: Nostro accounts ensure that the funds flow through authorised, regulated banking channels. This is crucial for compliance with RBI and FEMA rules.
In fact, RBI guidelines mandate that export remittances collected via online payment gateways must be routed into an AD bank’s Nostro account and then repatriated to India within a few days.
By coming in through Nostro rails, your payment automatically meets the criteria for obtaining official foreign inward remittance documents (like FIRA or eBRC). This means your earnings are properly recorded as inbound remittances, which helps in tax filings, claiming GST refunds or export incentives, and overall peace of mind that the money is legitimate and fully accounted for. - No Need for You to Open Foreign Accounts: Perhaps the biggest practical benefit – you don’t need to open a bank account in the US, Europe, or wherever your client is.
The Nostro infrastructure lets your Indian bank account receive foreign currency payments seamlessly. Your bank handles the currency conversion and holds the foreign currency on your behalf in its Nostro account. This simplifies life for freelancers and SMEs because you can invoice globally and get paid in INR, without the hurdle of maintaining overseas bank accounts.
- Smooth Documentation: Since payments via Nostro are traceable and compliant, your bank can issue the necessary documents like FIRA (Foreign Inward Remittance Advice) as soon as the money comes in.
This helps you quickly get an eBRC (Electronic Bank Realisation Certificate) for export earnings, which is essential for many compliance and incentive claims. In essence, Nostro-backed transfers leave an official paper trail.
So, while you, as an exporter or freelancer, don’t manage Nostro accounts, knowing that your bank or payment platform uses reliable Nostro channels gives confidence. It means your money will likely arrive faster, with fewer deductions, and with proper RBI-compliant records – all without you having to do anything extra.
Skydo Tip: Get Paid Faster with Local Virtual Accounts (Nostro in the Background)
Modern fintech platforms are leveraging Nostro accounts to simplify international payments further. For instance, Skydo provides a solution where you get a local receiving account in your client’s country, but the heavy lifting is done via Skydo’s Nostro accounts. Let’s understand how this works with an example:
Example: Riya is a freelance designer in India. Her client, Matt, is in the US and owes her $1,000 for a project. Riya uses Skydo to receive the payment. Here’s what happens behind the scenes:
- Local USD Account for Riya: Skydo provides Riya with a virtual USD account (a local U.S. bank account number) tagged specifically to her. This account is powered by Skydo’s USD Nostro account with a reputable U.S. bank (e.g. JPMorgan or Wells Fargo), but it’s uniquely linked to Riya as the beneficiary.
- Matt Pays Domestically: Matt transfers $1,000 domestically (e.g. via ACH or local transfer) to Riya’s provided U.S. account details. To Matt, it’s just like paying a U.S. vendor – no SWIFT code, no international wire complexity. This reduces friction and eliminates intermediary bank fees or deductions on the way, since the payment never travels through the multi-bank SWIFT maze.
- Funds Land in Skydo’s Nostro: The $1,000 payment from Matt is received into Skydo’s USD Nostro account in the US (which that virtual account feeds into). Because the funds are already in the U.S. and already in USD, there’s no double currency conversion or unnecessary routing. The money is now securely held by Skydo’s U.S. banking partner on behalf of Riya.
- Quick Conversion to INR: Skydo then converts the $1,000 to Indian Rupees for Riya at live forex rates with zero markup. A flat fee is applied (Skydo is transparent about fees), and then the INR amount is transferred to Riya’s Indian bank account. This typically happens within 24–48 hours, much faster than a conventional international wire. Riya gets the best possible exchange rate (no hidden spread) and a speedy transfer to her local bank.
- Automatic Compliance Documents: As soon as the INR hits Riya’s account, Skydo auto-generates a FIRA (Foreign Inward Remittance Advice) for the transfer – an RBI-compliant proof that she received a foreign payment. Using that, she can easily obtain an eBRC through her bank for tax filing or export incentive purposes. All the paperwork is handled without Riya having to chase the bank; it’s part of the service.
Skydo offers such virtual receiving accounts not just in USD but also in other major currencies like GBP, EUR, SGD, CAD, etc., backed by trusted global banking partners (e.g. Barclays in the UK/Europe, Digital Commerce Bank in Canada, DBS in Singapore, among others). This Nostro-backed system lets freelancers, SaaS businesses, and agencies get paid faster, avoid hidden forex markups, and stay fully compliant, without any back-and-forth with your bank for each payment.
Want to see how it works for you? You can create your free Skydo account in just 5 minutes and start receiving global payments with ease. 🚀
What is the meaning of a Nostro account in banking?
A Nostro account is a bank’s account held in a foreign country’s bank, in the foreign currency. The word “Nostro” literally means “ours” – so it refers to “our money that is on deposit at your bank”. Essentially, it’s a foreign currency account that one bank (say an Indian bank) maintains with another bank abroad. This allows the Indian bank to easily send or receive that foreign currency on behalf of its customers. For example, an Indian bank’s USD Nostro account in the U.S. holds U.S. dollars for settling payments, even though you, as a customer, never directly touch those dollars.
Can an individual (freelancer) open a Nostro account?
What is the difference between Nostro and Vostro accounts?
What fees or charges are associated with Nostro account transactions?
Do Indian banks use IBAN for international payments?
How does using a Nostro account make payments faster or safer?
