When you send money abroad, it feels like your rupees simply appear in someone else's account overseas. Behind that simple experience is a web of accounts that banks hold with each other, and two of the most important are called nostro and vostro accounts. They are the quiet plumbing that lets a bank in one country settle payments in another without opening a branch there.
Nostro and vostro are terms used in international banking for the accounts financial institutions hold with each other to move money across borders. A nostro account lets a bank manage its foreign-currency assets held at another bank; a vostro account lets a bank hold and service funds on behalf of a foreign bank. Together they simplify how cross-border transactions settle and cut down the messy currency arrangements that would otherwise be needed. This guide explains both, the difference between them, and how they actually work in a payment.
Nostro and vostro are terms used in international banking for the accounts financial institutions hold with each other to move money across borders. A nostro account lets a bank manage its foreign-currency assets held at another bank; a vostro account lets a bank hold and service funds on behalf of a foreign bank. Together they simplify how cross-border transactions settle and cut down the messy currency arrangements that would otherwise be needed. This guide explains both, the difference between them, and how they actually work in a payment.
TL;DR
- Nostro and vostro accounts are correspondent bank accounts used to settle cross-border payments: a nostro is “our account with your bank,” while a vostro is “your account with our bank.”
- The same account can be both nostro and vostro depending on perspective. For example, an Indian bank’s USD account at a US bank is a nostro to the Indian bank and a vostro to the US bank.
- These accounts let banks transact in foreign currencies without establishing a presence in every country, but multiple correspondent-bank hops can add fees, reconciliation steps, and settlement delays to international payments.
What is a nostro account?
"Nostro" comes from the Latin for "ours," and it refers to an account a bank holds in its own name at a foreign bank, usually denominated in that foreign bank's local currency. The bank that holds the account for the other is called the facilitator or correspondent bank; the bank that owns the funds is the respondent bank.
An example makes it concrete. If a Canadian bank opens an account with a Japanese bank to handle transactions in yen, the Canadian bank sees this as a nostro account held in Japan, its money, sitting on the Japanese bank's books, ready to conduct business in yen. Here the Japanese bank acts as the facilitator or correspondent.
Nostro accounts make cross-border transactions smoother by holding money in the foreign bank's currency. That removes the need to convert currency on every single transaction, simplifies settlement, and shields the owning bank from some exchange-rate movement. It also helps with liquidity management, letting a bank position funds where international trade demands them.
What is a vostro account?
"Vostro," also from Latin, means "yours," and it is the same kind of account seen from the other side: an account a bank holds on behalf of a foreign bank, in the holding bank's local currency. Vostro accounts are a core part of correspondent banking, where the bank holding the funds acts as custodian for its foreign counterpart.
To flip the earlier example: if a Japanese bank asks a Canadian bank to hold funds on its behalf in Canadian dollars, the holding bank (the Canadian bank) recognises that as a vostro account of the Japanese bank. The arrangement lets the Japanese bank manage money in Canada without setting up a direct presence there.
Vostro accounts simplify international transactions by letting a foreign bank hold local-currency funds through a domestic partner. That streamlines things for the foreign bank's clients, reduces the complexity of managing accounts across countries, and puts fund custody in the hands of a bank that operates locally. The net effect is smoother cross-border operations and easier international fund management.
For an India example, consider the RBI’s framework for settling international trade in rupees, introduced in July 2022. Under it, a foreign bank can open a Special Rupee Vostro Account (SRVA) with an authorised Indian bank. Say a Russian bank opens an SRVA with an Indian bank in Mumbai: when a Russian buyer imports textiles from an exporter in Tiruppur, the Russian bank funds its rupee account in India, and the Indian bank pays the exporter directly in INR, with no conversion into US dollars along the way. The Indian bank recognises this as a vostro account of the Russian bank, while the Russian bank records the same account as its nostro. Banks from more than 20 countries have since been permitted to open SRVAs, helping Indian exporters cut currency conversion costs and settle trade in their own currency
What Is a Loro Account?
“Loro,” from Italian, means “theirs,” and it completes the trio alongside nostro (“ours”) and vostro (“yours”). A loro account is a nostro or vostro account viewed by a third party: it’s how one bank refers to an account that a second bank holds with a third bank.
Continuing the earlier example, if a Japanese bank holds Canadian dollars with a Canadian bank, the Japanese bank calls it a nostro account, and the Canadian bank calls it a vostro account. If a bank in India then needs to send money to that account, perhaps to settle a payment for a client, it refers to it as a loro account, because the account belongs to neither of them but sits between two other banks. In practice, the term is used mainly in correspondent banking communications to make it clear whose account is being discussed when three or more banks are involved in a single transaction.
What Is a Mirror Account?
A mirror account (also called a shadow account) is an internal record a bank keeps of its own nostro account. Because the actual nostro account sits with a foreign bank, the domestic bank can’t see the balance in real time. Instead, it maintains a mirror copy in its own books, recording every expected debit and credit in the account’s currency as transactions happen.
For example, an Indian bank with a US dollar nostro account at a bank in New York keeps a mirror account in its own system that tracks every dollar it sends or expects to receive. At the end of each day, the Indian bank compares its mirror account with the statement sent by the New York bank. Any mismatch, such as a missing payment, a duplicate entry, or an unexpected fee, shows up immediately and can be investigated. This daily reconciliation helps banks manage liquidity, avoid overdrawing their foreign accounts, and catch errors before they become costly.
Nostro vs vostro vs loro vs mirror: it's all a matter of perspective
Here is the part that trips people up: nostro and vostro can describe the very same account. Which term applies depends on whose books you're looking at.
Take Bank ABC, an Indian bank, and Bank XYZ, an American bank. If Bank ABC holds an account with Bank XYZ in USD (Bank XYZ's local currency), then from Bank ABC's viewpoint it is a nostro account, "our account on your books." From Bank XYZ's viewpoint, the exact same account is a vostro account, "your account on our books," because Bank XYZ is holding a foreign bank's funds in its own local currency.
Same account, two names, decided entirely by perspective. Once that clicks, the rest of correspondent banking gets a lot easier to follow.
| Nostro account | Vostro account | Loro account | Mirror account | |
|---|---|---|---|---|
| Meaning | "Ours" (our money at your bank) | "Yours" (your money at our bank) | "Theirs" (their money at another bank) | Internal copy of a nostro account |
| Whose books | The owning bank's view | The holding bank's view | A third bank's reference to the account | The owning bank's internal records |
| Currency | The foreign bank's local currency | The holding bank's local currency | The currency of the underlying account | Same foreign currency as the nostro |
| Role of holder | Correspondent / facilitator bank | Custodian for the foreign bank | Third party referring to an account between two other banks | Used for tracking and daily reconciliation |
| Example | Bank ABC's USD account seen by ABC | The same account seen by Bank XYZ | The same account seen by Bank DEF | ABC's internal record of its USD balance at XYZ |
What is a Special Rupee Vostro Account (SRVA)?
A Special Rupee Vostro Account (SRVA) is a rupee-denominated account that a foreign bank opens with an authorised Indian bank so that international trade can be invoiced, paid, and settled in Indian rupees instead of US dollars or another foreign currency. The RBI introduced the framework in July 2022 to promote global trade in INR, support the internationalisation of the rupee, and give Indian businesses an alternative to dollar-based settlement.
Like any vostro account, an SRVA is held by the Indian bank on behalf of its foreign counterpart, but it comes with its own rules for how the money can be used, and it’s dedicated specifically to trade settlement in rupees.
How an SRVA Works
When an Indian business exports goods or services to a partner country, the overseas buyer pays its own bank, which then credits the rupee equivalent to its SRVA in India. The Indian bank debits the SRVA and pays the exporter directly in INR. Imports work the other way round: the Indian importer pays rupees into the foreign bank’s SRVA, and the foreign bank pays the overseas supplier in its local currency. The exchange rate between the two currencies is market-determined, and because the payment never routes through dollars, both sides avoid a double currency conversion.
What Happens to Surplus Balances
If a foreign bank’s SRVA builds up more rupees than it needs for trade payments, the balance doesn’t have to sit idle. The RBI allows these surplus funds to be invested in Indian government securities, including treasury bills, and the list of permitted uses has been widened over time. Indian exporters can also receive advance payments from SRVA balances against future exports.
Why SRVAs Matter for Indian Businesses
For exporters and importers, the biggest benefit is lower costs: settling directly in rupees removes conversion margins and reduces exposure to currency swings. SRVAs also make trade easier with countries that face a shortage of US dollars or difficulty using the dollar system, which is why banks from Russia, the UAE, Sri Lanka, Mauritius, Malaysia, and several other countries were among those permitted to open them. Banks from more than 20 countries now participate. More broadly, SRVAs are a key step in the RBI’s push to make the rupee a currency used in global trade, which over time could lower India’s dependence on the dollar.
How cross-border payments use nostro and vostro accounts
These accounts are what make an international transfer actually settle. Take a simple example: Kiran in India wants to send $100 to Jill in the US.
Kiran banks with Indian Bank ABC; Jill banks with American Bank XYZ. Bank ABC maintains a nostro account in USD with Bank XYZ, and Bank ABC also maintains a vostro account in INR for Bank XYZ. When Kiran sends the payment:
- Bank ABC deducts the INR equivalent of $100, minus any fees, from Kiran's account.
- That INR is moved to Bank XYZ's vostro account held at Bank ABC.
- Bank ABC instructs Bank XYZ to pay $100, minus any fees, from Bank ABC's nostro account to Jill's account.
- The two banks reconcile between themselves so the transfer completes accurately.
Notice how many steps, fees, and reconciliations sit inside a single "send $100." That is the reality of correspondent banking, and it is why traditional cross-border transfers can be slow, opaque, and dotted with charges at each hop.
Why this matters for modern cross-border payments
Nostro and vostro accounts are elegant, but they carry the costs of their own design: multiple intermediaries, funds parked in foreign currencies, fees taken at each stage, and settlement that can take days. For banks and large corporations, that is a manageable trade-off. For a small exporter or a growing business collecting from overseas customers, those hops turn into slow settlement, unclear FX, and unpredictable costs.
This is why modern cross-border payment providers exist: to route around as much of that friction as possible and give businesses faster settlement and transparent pricing. Understanding nostro and vostro is what makes the difference visible. If you're a business receiving international payments and want to skip the multi-hop delays this system can create, PayGlocal's [cross-border payments platform](/international-payments-platform) is built for exactly that.
Conclusion
Nostro and vostro accounts are the vital, largely invisible framework that lets banks settle international and foreign-exchange transactions without setting up shop in every country. The system lets banks extend their global reach, offer services in many currencies, manage currency risk, and tap local banking infrastructure abroad, all through accounts held with trusted partners. The two words describe one relationship from two sides, and once you see it that way, the machinery behind every international payment makes a lot more sense.
If your business would rather not wait on that machinery, talk to the PayGlocal team about faster, more transparent cross-border payments.
