Russian Banks to open Vostro Accounts in India
2022 NOV 17
Preliminary >
Economic Development > Indian Economy and Issues > External sector
Why in news?
- RBI has allowed the opening of nine special vostro accounts in two Indian Banks for the settlement of payments in rupee for trade between India and Russia.
- Russia’s two largest banks — Sberbank and VTB Bank — are the first foreign lenders to have received approval from the RBI towards settling international trade transactions in rupee.
- A Vostro account is just another name for a Nostro account. It is an account held by a bank that allows the customers to deposit money on behalf of another bank.
Background:
- In July 2022, the RBI had unveiled a mechanism to settle international transactions in rupee to promote the growth of global trade, with emphasis on exports from India, as well as pushing rupee as an international currency.
- It is also expected to enable trade with sanction-hit nations such as Russia.
- According to the mechanism finalised by the RBI, banks of partner countries can approach authorised dealer banks in India for opening special rupee vostro accounts.
- The authorised dealer bank will then have to seek approval from the central bank with details of such an arrangement.
Nostro Account v/s Vostro Account:
- "Nostro" and "vostro" are two different terms used to describe the same bank account.
- The terms are used when one bank has another bank's money on deposit, typically in relation to international trading or other financial transactions.
- Both banks in the venture must record the amount of money being stored by one bank on behalf of the other bank. The terms nostro and vostro are used to differentiate between the two sets of accounting records kept by each bank.
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A Nostro account is a reference used by Bank A to refer to "our" account held by Bank B.
Nostro is a shorthand way of talking about "our money that is on deposit at your bank."
The Nostro account is the record of the bank that has money on deposit at another bank.
These accounts are often used to simplify settlements of trade and foreign exchange transactions. They are denominated in foreign currencies
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Vostro is the term used by Bank B, where bank A's money is on deposit.
Vostro is a reference to "yours" and refers to "your money that is on deposit at our bank."
A vostro account is like any other account held by a bank. The account is a record of money owed to or maintained by a third party, typically another bank, but it can be either a company or an individual.
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PRACTICE QUESTION
Consider the following statements:
1. Nostro accounts are denominated in foreign currencies
2. Vostro accounts enable domestic banks to provide international banking services to their clients who have global banking needs.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
Answer
