Vostro, Nostro and Loro Accounts:-
Bank maintains three types of current accounts for quick transfer of funds in foreign currencies. In case of transfer of foreign exchange from one account to another, Vostro, Nostro and Loro accounts are used.
Vostro Account:-
Vostro is an Italian word which literally means “Your“. This account is the account of one country’s bank [foreign bank] with another country’s bank [Indian bank].
Example:-
- Account of foreign bank with local bank.
- Citibank’s account with State bank of India.
- Doha bank maintains an account with Punjab National Bank.
[Your account with us]
Nostro Account:-
Nostro is an Italian word which literally means “Our”. This account is the account which is held by a domestic bank [ex.-Indian bank] with foreign bank [ ex.-bank in Switzerland]. It is also known as “our account with you”.
Here, one country’s bank’s currency account is maintained by the bank in a foreign country is called as Nostro Account.
Example:-
- An Indian bank’s account with a bank in Switzerland in Swiss franc.
- An Indian bank’s account with bank in USA in US Dollar.
Note:- Account which is Nostro for one bank is Vostro for another.
Loro Account:-
Loro is an Italian word which literally means “Their“. This account is the account where foreign exchange transaction are settled by domestic banks by using the account of third party bank which has a Nostro account. Ex.-ICICI bank’s account with Citibank.
Example:-
If IFCI bank is required to be paid the bill of machinery imported from the USA on behalf of its customers, IFCI bank will approach ICICI bank who has Nostro account with Citibank and ask to settle the invoice on its own behalf.
Here, ICICI bank works as an intermediary between Citibank and IFCI bank.