George Mathew
In the wake of US and European sanctions on Russia, the government on Tuesday (November 15) announced the opening of nine special Vostro accounts in two Indian banks after the RBI’s approval to facilitate rupee trading.
What is Vostro Account?
A Vostro account is an account held by a domestic bank for a foreign bank in the domestic bank’s currency – rupees in the case of India. RBI sanctioned nine accounts including IndusInd Bank (IndusInd) and UCO Bank (UCO).
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For trade with Russia, charges for export and import of goods go to these Vostro accounts. The owners and beneficiaries of this money will be exporters and importers in both countries. Banks will record the money transfer.
What is Nostro Account?
Two types of accounts, vostro and nostro, are often referred to together. Both Vostro and Nostro are technically the same type of account, the difference lies in who opens the account and where.
So, if an Indian bank like SBI wants to open an account in the US, it will approach a bank in the US, which will open a Nostro account and pay SBI in dollars.
An account opened by an Indian bank in the US is treated as a Nostro account for the Indian bank and as a Nostro account for the American bank.
Actually, in Latin nostro means ‘ours’ and vostro means ‘yours’. Therefore, accounts opened by IndusInd and UCO are Vostro, and those opened by Sberbank and VTB Bank of Russia are Nostro accounts.
What led to the creation of Vostro Accounts?
On July 11, the RBI set up a mechanism to settle international trade in rupees “to promote the growth of global trade with emphasis on exports from India and to support the growing interest in the rupee by the global trading community”.
The RBI’s move comes as pressure on the Indian currency has increased in the wake of Russia’s aggression against Ukraine and sanctions from the US and EU.
According to RBI, AD (Authorized Dealer) banks in India are allowed to open Rupee Vostro accounts. Accordingly, an AD bank in India can open special Rupee Vostro accounts of corresponding banks of the partner trading country to settle trade transactions with any country.
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