Vostro Account is a type of bank account that a domestic bank holds on behalf of a foreign bank in the local currency. It is commonly used in international trade and foreign exchange transactions to facilitate cross-border payments without the need for foreign banks to set up branches in another country. The term “Vostro” comes from the Latin word meaning “yours,” referring to “your account with us.”

In simpler terms, a Vostro Account allows a foreign bank to operate in India through an Indian bank, enabling smooth settlements for trade, remittances, and investments. For example, if a foreign bank wants to handle payments in Indian Rupees (INR) for its clients, it can open a Vostro Account with an Indian bank. This helps streamline financial operations and supports bilateral trade relationships.

In India, Authorized Dealer Category-I banks are permitted by the Reserve Bank of India (RBI) to open and manage Vostro Accounts. These accounts are often linked with Nostro Accounts, which are the opposite — accounts held by a domestic bank in a foreign bank abroad. Together, Nostro and Vostro Accounts form the foundation of international banking and help maintain global liquidity and payment systems.

Vostro Accounts have gained more attention since the introduction of the Rupee Trade Settlement Mechanism, allowing countries to settle trade in Indian Rupees instead of relying solely on the U.S. dollar. This move enhances financial sovereignty and reduces foreign exchange risks for participating nations.

Understanding how a Vostro Account works is essential for importers, exporters, and investors engaged in global transactions. It plays a vital role in promoting seamless international trade, ensuring compliance with RBI and SEBI regulations, and fostering stronger financial ties between nations.