Nostro Account

Trade Finance

An account held by Bank A in foreign currency at Bank B in another country. From Bank A's perspective.

Sources

1. Reserve Bank of India — Master Direction – Export of Goods and Services, FED Master Direction No. 16/2015-16 (updated as on 17 July 2026) rbi.org.in accessed 23 September 2026

The Master Direction uses the term in its ordinary correspondent-banking sense — the Indian bank’s own account held abroad — and makes settlement turn on it. Where an overseas buyer pays by card during a visit, the duplicate EDF is to be released “only on receipt of funds in their Nostro account”, or else against a certificate from the card-servicing bank that the foreign exchange has been received. Under the Asian Clearing Union mechanism, AD Category – I banks “are allowed to open and maintain ACU Dollar, ACU Euro and ACU Japanese Yen accounts with their correspondent banks in other participating countries”, and since the 44th ACU Board meeting in 2015 those same “Nostro accounts of the commercial banks of the ACU member countries” may be used to settle both exports and imports among ACU countries. Note the Direction’s own caveat: operations in ACU Euro have been suspended since 1 July 2016.

What this source settles. The Reserve Bank of India’s Master Direction is a direction to Authorised Dealer banks under sections 10(4) and 11(1) of FEMA 1999. It settles what an AD bank in India may do and what an Indian exporter must do — not what the instrument means in general commercial use elsewhere. Where the entry above states a rule, it is India’s rule for an Indian transaction; the market practice behind the term is wider than the Direction and is not defined by it.

Related terms

• Advance Payment
• Aval
• Back-to-Back LC
• Bank Guarantee
• Bill Discounting
• Bill of Exchange

From the AJG lexicon archive (July 2026).