Nostro and Vostro Account: Meaning, Differences & Example
Suppose an Indian freelancer sends a $5,000 invoice to a US client and receives confirmation that the full payment has been made. However, when funds are transferred to a bank account in India, the amount received is lower than expected. There is no proper explanation for the difference, and the exchange rate appears slightly unfavorable overall.
This is a common issue in international payments. The reason is that funds cannot travel directly from one bank to another. They go through various intermediary accounts controlled by banks in different countries. These accounts are called nostro and vostro accounts. They play a major role in processing cross-border payments but also cause delays, conversion charges, and hidden deductions.
This article explains their meaning, differences, real-world usage, and how recent payment methods are making the process more simple.
TL;DR - Summary
- Definition: - Nostro and vostro are bank accounts for international payments, meaning "ours" and "yours" in Latin.
- Same Account, Different View: - These accounts refer to the same account, but the name changes depending on the bank's perspective.
- Operational Impact: - Intermediary banks cause delays, hidden deductions, and low payment visibility.
- Modern Alternative: - Platforms like Skydo enable faster, more transparent international payments with less reliance on traditional banks.
What are Nostro and Vostro Accounts?
The terms “nostro” and “vostro” are derived from Latin words meaning “ours” and “yours,” respectively. A nostro account is an account that a bank holds in a foreign country in that country’s currency. For example, an Indian bank can maintain a US dollar account with a bank in the United States.
On the other hand, a vostro account refers to the same account but viewed from the side of the foreign bank that operates it. In simple terms:
- Nostro account means our account held with you
- Vostro account means your account held with us
For instance, if an Indian bank holds an account in USD with a US bank:
- The Indian bank calls it a nostro account
- The US bank calls it a vostro account
In India, the Reserve Bank of India directs banks to maintain accounts in leading currencies such as USD, EUR, and GBP. These accounts assist in managing imports, exports, and international fund transfers with ease.
Why Do We Need Nostro and Vostro Accounts?
Nostro and vostro accounts hold a key role in keeping international banking simple, fast, and reliable for cross-border transactions.
- Cross-Border Payments: When businesses deal across countries, payments involve different currencies and banking systems. Nostro and vostro accounts allow banks to handle these transactions smoothly without moving money separately for each transfer.
- Pre-Held Foreign Currency: Banks maintain funds in foreign currencies beforehand using these accounts. This allows them to process payments faster, as there is no requirement for repeated currency conversion at each step.
- Faster Processing: These accounts reduce delays caused by approvals and conversion processes. As a result, transactions are completed more quickly and efficiently.
- Predictable Transactions: As funds are readily available, payments remain steady and easier to track. This supports businesses in managing cash flow well through proper planning and lower uncertainties overall.
- Reduced Counterparty Risk: Banks work with trusted correspondent partners through these accounts. This reduces the risk and ensures the secure handling of international transactions, especially for large-value deals.
- Role in Global Banking: Nostro and vostro accounts are widely applied in trade finance operations, including letters of credit, import and export payments, and SWIFT transfers. They are a vital part of the system that supports global trade.
Why Nostro and Vostro Accounts Matter for Indian Exporters
Step 1
USD lands in nostro account
Foreign buyer's payment arrives at the Indian bank's USD account held in the US
Intermediary fees may apply hereStep 2
Currency converted to INR
USD is converted at the bank's exchange rate — often with a markup over the mid-market rate
FX markup applied hereStep 3
INR credited to exporter
Final amount arrives in the exporter's Indian bank account — lower than invoiced
For Indian exporters and freelancers, these accounts hold an important role in how payments are received. When a foreign buyer sends money, the funds do not reach the exporter directly. They go through one or more intermediary banks before being credited in India.
For example, when a US client sends USD to an Indian exporter, the payment initially lands in the Indian bank's US nostro account. It is then processed, converted into INR, and credited to the exporter's account.
This process causes delays and added charges. Every intermediary bank may charge a fee, and currency conversion can apply a markup, which reduces the final amount received. As a result, these delays and deductions directly affect the exporter’s cash flow.
Nostro vs Vostro vs Loro: Differences & Similarities
The same account — three names
💸 Bank B's USD account held at Bank A (US)
Each bank calls it something different depending on their perspective
Bank B (India) sees it as
Nostro
"Our account with you"
Bank B holds this account abroad in foreign currency
Bank A (US) sees it as
Vostro
"Your account with us"
Bank A holds Bank B's funds on their behalf
Bank C (UK) refers to it as
Loro
"Their account"
Bank C routes through this account when transacting
This indicates all three terms refer to the same kind of banking relationship but from varied perspectives.
These accounts come under correspondent banking and support international payments and settlements. They help banks function across countries without setting up a physical presence everywhere.
The following is a simple comparison between them:
Hidden Costs in Nostro & Vostro Accounts
International payments processed through these accounts may appear simple, but they often involve hidden costs and delays that are not immediately visible to exporters.
- Multiple Cost Layers: While these accounts enable international transactions, they also add several layers of cost. Many such charges are not directly visible to exporters, making it hard for them to track them.
- Charges by Multiple Banks: When a payment moves through different banks, each one may apply its own fees. Such costs include correspondent bank charges, SWIFT messaging fees, and currency conversion margins.
- Additional Bank Deductions: The receiving bank may also deduct handling or lifting fees before crediting the final amount. Since these charges occur at different stages, they are not shown as one combined fee.
- Impact on Transaction Value: For a $5,000 transaction, exporters may lose 3–5% of the total value. This means a deduction of about $150 to $250, which can significantly affect earnings over multiple transactions.
- Processing Time Delays: Payments usually take 2 to 4 business days as they pass through multiple banks. Any issue in the process can further increase the delay.
- Lack of Transparency: These costs are treated as hidden since exporters only see the final credited amount. There is no clear breakdown of deductions by each bank, making it hard to determine where the charges were applied.
Review the exchange rate given by your bank and compare it with the mid-market rate at that time to identify possible hidden costs.
Hidden deductions in international payments can reduce your earnings without clear visibility. Check exactly what you could save on your next payment with a transparent pricing approach using Skydo’s fee calculator.
Nostro & Vostro Account Example in Real World
↓ Life of a $5,000 payment — US client to Indian freelancer
US client sends
Payment initiated
SWIFT fees
Messaging charges
Correspondent fee
Intermediary bank
FX markup
Currency conversion
Freelancer receives
Final credit
Total lost to fees and FX markup
Across SWIFT, correspondent bank, and conversion
Expected: ₹4,15,000
Received: ₹4,00,000
A typical international payment follows a structured path across multiple banks before reaching the final beneficiary.
To explain how these accounts operate, here is a clear nostro and vostro account example involving a freelancer in India and a client in the United States. In this case:
- The US client initiates a payment of $5,000 through their bank
- The payment is routed through a correspondent bank
- The funds reach the Indian bank’s nostro account in the US
- Currency conversion from USD to INR takes place
- The funds are transferred to the Indian bank in India
- The final amount is credited to the freelancer’s account
As the payment proceeds through this chain, multiple charges are taken at different stages, which reduce the final amount received.
- SWIFT fees are deducted
- Correspondent bank charges are applied
- Exchange rate margin reduces value
If the mid market conversion rate yields ₹4,15,000, the freelancer may receive around ₹4,00,000 after deductions.
How Does Skydo Bypass the Nostro and Vostro Account Chain?
Skydo improves international transactions by reducing reliance on traditional correspondent banking systems.
The primary benefits of using Skydo are that it streamlines international payments, reducing costs and delays.
- Virtual Receiving Accounts: Skydo supports exporters in collecting payments in local currencies through virtual accounts available in regions like the US and Europe. This removes dependence on multiple intermediary banks for processing payments.
- Transparent Forex Pricing: Payments are completed at mid-market rates with clearly defined fees. This reduces the chance of hidden charges often included during currency conversion processes.
- Faster Settlement: With fewer intermediaries, payments are typically settled within 1 to 2 business days, supporting better cash flow and reducing waiting time.
By making processes easier, Skydo helps reduce costs, increase transparency, and give exporters improved control over their international payment activities.
Can exporters directly access nostro or vostro accounts?
Exporters do not have access to or control over nostro or vostro accounts because banks keep these accounts only for interbank transactions. However, when exporters get international payments, the money passes through these accounts before reaching their local bank account. This shows exporters are indirectly affected by how these accounts operate daily.
How are nostro and vostro accounts different from NRE or NRO accounts?
Who regulates nostro and vostro accounts in India?
Why is the Loro account relevant in a three-bank transaction?
