Vostro Account

A Vostro account is a bank account that a domestic (correspondent) bank maintains on behalf of a foreign bank in the domestic bank’s local currency. These accounts facilitate international banking operations, allowing foreign banks to provide services to their customers in the domestic country. Vostro accounts are commonly used for cross-border payments, trade settlements, and currency conversions.

Example: A foreign bank in the USA wants to conduct business in India. Its Indian partner bank opens a Vostro account in Indian rupees to hold the foreign bank’s funds. In July 2022, the Reserve Bank of India introduced a mechanism allowing such accounts to settle international trade in rupees, making it easier for exporters and importers to transact without relying solely on foreign currencies like the US dollar.