By Sneha Iyer | Updated March 2026
What Are Nostro, Vostro & Special Rupee Vostro Accounts?
Nostro and Vostro accounts are the backbone of correspondent banking — the system that allows banks to settle international payments in currencies and jurisdictions where they have no physical branch. The terms come from Italian: Nostro means "ours" (an account our bank holds with a foreign bank, denominated in that foreign currency), and Vostro means "yours" (an account a foreign bank holds with our bank, denominated in our domestic currency). Every cross-border wire transfer, trade payment, or repatriation you initiate ultimately settles through one of these accounts.
For foreign companies operating in India, these accounts matter because they determine how quickly payments clear, what exchange rate you get, and how much you pay in intermediary fees. Since July 2022, a new variant — the Special Rupee Vostro Account (SRVA) — has transformed the landscape. Introduced by the RBI through A.P. (DIR Series) Circular No. 10 dated July 11, 2022 (RBI/2022-2023/90), the SRVA enables international trade to be invoiced, paid, and settled entirely in Indian Rupees, bypassing the US dollar altogether.
The SRVA framework was born out of geopolitical necessity. Western sanctions on Russia in 2022 disrupted dollar-based trade channels, and India needed an alternative settlement mechanism for its energy imports. The framework has since expanded well beyond Russia — as of August 2025, over 80 SRVAs are operational across more than 20 countries, and the RBI has removed the prior-approval requirement entirely (A.P. (DIR Series) Circular No. 08 dated August 5, 2025).
Legal Basis
The regulatory framework governing these accounts in India spans multiple RBI directions:
- Sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (FEMA) — The parent legislation empowering the RBI to regulate foreign exchange accounts, including correspondent banking relationships.
- RBI Master Direction on Opening and Maintenance of Rupee/Foreign Currency Vostro Accounts of Non-resident Exchange Houses — Governs standard Vostro accounts, updated December 22, 2022. AD Category-I banks may open or close Rupee accounts (non-interest bearing) for overseas correspondents without prior RBI reference.
- A.P. (DIR Series) Circular No. 10, dated July 11, 2022 — The foundational SRVA circular establishing the framework for international trade settlement in Indian Rupees. Issued under Sections 10(4) and 11(1) of FEMA.
- A.P. (DIR Series) Circular No. 08, dated August 5, 2025 — Removed the requirement for prior RBI approval when AD Category-I banks open SRVAs for overseas correspondent banks with existing relationships.
- A.P. (DIR Series) Circular No. 09, dated August 12, 2025 — Permitted SRVA holders to invest surplus rupee balances in Central Government Securities and Treasury Bills via the Fully Accessible Route (FAR) and General Route.
- A.P. (DIR Series) Circular No. 13, dated October 3, 2025 — Extended investment options to non-convertible debentures (NCDs), bonds, and commercial papers issued by Indian companies.
- Prevention of Money Laundering Act, 2002 — KYC/AML/CFT obligations apply to all correspondent banking relationships, including SRVAs.
How Do These Accounts Work?
Nostro Account
A Nostro account is our bank's account held with a foreign bank, denominated in that foreign bank's local currency. When State Bank of India (SBI) maintains a USD account at JPMorgan Chase in New York, that is SBI's Nostro account. SBI uses this account to settle all dollar-denominated transactions — trade payments, wire transfers, and forex deals — without needing a physical branch in the United States. From JPMorgan's perspective, the same account is a Vostro account ("your money held with us"). Only RBI-authorized AD Category-I banks can open and manage Nostro accounts in India.
Vostro Account
A Vostro account is a foreign bank's account held with our bank, denominated in our local currency (INR). When Deutsche Bank holds an INR-denominated account at HDFC Bank in Mumbai, that is HDFC Bank's Vostro account for Deutsche Bank. HDFC Bank credits and debits this account on Deutsche Bank's instructions to settle rupee transactions. Vostro accounts with credit balances appear as liabilities on the Indian bank's balance sheet.
Loro Account
A Loro account (Italian: "theirs") is a reference term, not a separate physical account. When a third bank refers to the Nostro/Vostro relationship between two other banks, it calls that account a Loro. For example, if ICICI Bank discusses SBI's account at JPMorgan, ICICI calls it a Loro account. This distinction matters in multi-bank syndicated transactions and interbank reconciliations.
Special Rupee Vostro Account (SRVA)
An SRVA is a specialized Vostro account opened by an Indian AD Category-I bank for a foreign correspondent bank, specifically for settling international trade transactions in Indian Rupees. Unlike a standard Vostro (which handles general banking), the SRVA is ringfenced for trade settlement — imports, exports, and permitted capital account transactions denominated entirely in INR.
| Feature | Nostro Account | Vostro Account | SRVA |
|---|---|---|---|
| Whose money? | Our bank's funds abroad | Foreign bank's funds with us | Foreign bank's trade funds with us |
| Currency | Foreign currency | INR (domestic) | INR only |
| Held by | Foreign bank | Indian bank | Indian AD Cat-I bank |
| Purpose | General cross-border settlement | General correspondent banking | INR trade settlement only |
| RBI approval | Not required (AD Cat-I) | Not required | Not required (since Aug 2025) |
| Interest-bearing | Varies by arrangement | Non-interest bearing (Rupee) | Non-interest bearing |
| Surplus investment | Per foreign bank rules | Limited | G-Secs, T-Bills, NCDs, bonds, CPs |
| Balance sheet treatment | Asset (debit balance) | Liability (credit balance) | Liability (credit balance) |
The SRVA Mechanism: How INR Trade Settlement Works
The SRVA framework enables a complete trade cycle in Indian Rupees without converting to USD or any other hard currency. Here is the step-by-step settlement process:
For Indian Imports (Paying an Overseas Supplier)
- The Indian importer places an order with an overseas exporter, with the invoice denominated in INR.
- The Indian importer's bank debits the importer's INR account.
- The Indian bank credits the INR amount into the SRVA maintained for the overseas exporter's correspondent bank.
- The overseas correspondent bank converts the INR credit into the exporter's local currency (or retains it in INR) and pays the overseas exporter.
- Exchange rate determination is market-based between the two trading currencies; where direct quotes are unavailable, cross-rates via USD/EUR/JPY are used.
For Indian Exports (Receiving Payment from an Overseas Buyer)
- The overseas importer pays in its local currency to its domestic bank.
- The overseas bank converts the local currency into INR and remits to the SRVA maintained at the Indian AD bank.
- The Indian AD bank debits the SRVA and credits the Indian exporter's domestic account in INR.
- The Indian exporter receives an INR credit — no forex conversion at the exporter's end.
Advance payments against exports from overseas importers are permitted in INR through the SRVA. The mechanism is country-agnostic and covers all permissible goods and services — there is no restricted product list. Indian exporters receiving payment through SRVAs can still claim benefits under the RoDTEP scheme and other export incentives.
Participating Countries and Banks
The SRVA network has grown rapidly since its July 2022 launch. As of early 2026, the RBI has approved over 80 SRVAs across 30+ trading partner countries. Key participants include:
| Country | Foreign Bank(s) | Indian Partner Bank | Status |
|---|---|---|---|
| Russia | Sberbank, VTB Bank, Gazprombank, Rosbank, Tinkoff Bank, Centro Credit Bank, Credit Bank of Moscow (20+ banks total) | UCO Bank, Union Bank of India, SBI, Indian Bank | Active — largest SRVA volume |
| Sri Lanka | People's Bank, Bank of Ceylon, NDB Bank, Seylan Bank | SBI, Indian Bank | Active |
| Malaysia | Correspondent banks via UBI arrangement | Union Bank of India (first Indian bank to open SRVA in Malaysia, April 2023) | Active |
| Mauritius | SBI Mauritius Ltd | SBI | Active |
| Germany | Correspondent banks | Multiple AD banks | Active |
| United Kingdom | Correspondent banks | Multiple AD banks | Active |
| Singapore | Correspondent banks | Multiple AD banks | Active |
| Israel | Correspondent banks | Multiple AD banks | Active |
| Myanmar | Correspondent banks | Multiple AD banks | Active |
| Botswana, Fiji, Guyana, Kenya, New Zealand, Oman, Seychelles, Tanzania, Uganda | Various | Various AD banks | Approved / Active |
The full directory of active SRVAs is published on FEDAI's (Foreign Exchange Dealers' Association of India) website under the "SRVA Directory" section.
Surplus Balance Investment Options
One of the most significant developments since the original 2022 circular is the progressive liberalization of what SRVA holders can do with surplus rupee balances. The RBI has expanded investment options in three waves:
| Date | Circular | Investment Permitted |
|---|---|---|
| July 2022 | A.P. (DIR) Circular No. 10 | Government Treasury Bills and Government Securities |
| August 12, 2025 | A.P. (DIR) Circular No. 09 | Central Government Securities (including T-Bills) via Fully Accessible Route (FAR) and General Route; FPI limits apply except short-term limits waived for SRVA holders |
| October 3, 2025 | A.P. (DIR) Circular No. 13 | Non-convertible debentures (NCDs), bonds, and commercial papers (CPs) issued by Indian companies |
AD banks must maintain separate security accounts for SRVA investments, provide NDS-OM platform access, and ensure all sale and maturity proceeds return to the SRVAs. This makes SRVAs attractive for foreign banks that accumulate rupee surpluses from trade — rather than leaving idle balances, they can earn returns on Indian sovereign and corporate debt.
How This Affects Foreign Investors in India
If your company trades with India — importing Indian goods, exporting to Indian buyers, or operating an Indian subsidiary — the Nostro/Vostro/SRVA framework directly impacts your costs and settlement speed.
Reduced Forex Costs
Traditional trade settlement routes USD through two conversion layers (your currency to USD, then USD to INR). Each conversion carries a spread of 0.5-2%. SRVA settlement eliminates one conversion entirely if you trade in INR, saving 0.5-1.5% per transaction. On a USD 1 million trade, that is USD 5,000-15,000 in savings.
Sanctions-Resilient Channel
The SRVA framework was designed as a parallel payment rail. If your home country faces SWIFT restrictions or dollar-clearing limitations (as Russia experienced post-2022), the INR settlement route through SRVAs remains operational. This is particularly relevant for companies in countries with strained Western banking relationships.
Faster Settlement
Dollar-routed international payments typically take T+1 to T+3 business days, passing through SWIFT and multiple intermediary banks. SRVA settlements between Indian and partner-country banks can settle within the same business day because there is no intermediary dollar-clearing step.
Rupee Internationalization
For foreign companies with recurring India trade, holding INR balances through a correspondent bank's SRVA provides a natural hedge. Rather than converting to dollars and back to INR for each transaction, you maintain a running rupee position. The expanded investment options (G-Secs, NCDs) mean those balances earn returns rather than sitting idle.
FEMA Compliance Simplified
Payments through SRVAs are inherently FEMA-compliant because the Indian AD bank handles all regulatory reporting. The FIRC (Foreign Inward Remittance Certificate) is generated automatically, and Form 15CA/15CB obligations for outward remittances are streamlined because the transaction stays in INR.
Common Mistakes
- Assuming SRVAs replace standard Nostro/Vostro arrangements. The SRVA is an additional mechanism for INR-denominated trade settlement. Your bank's existing Nostro/Vostro accounts in USD, EUR, or GBP remain essential for non-INR transactions, capital account flows, and general remittances. Companies that close their dollar correspondent channels in favor of SRVA-only settlement lose flexibility.
- Ignoring exchange rate risk in SRVA settlements. Because SRVA transactions settle in INR, the exchange rate is determined at the point of conversion by the overseas correspondent bank. If your home currency depreciates against INR between invoice date and settlement date, you bear the loss. Companies routinely fail to hedge this exposure because they assume "rupee settlement" means no forex risk — it merely shifts the conversion point.
- Not checking whether your correspondent bank has an active SRVA. Over 80 SRVAs exist, but they are concentrated among specific bank pairs. If your overseas bank does not have an SRVA with an Indian AD bank, you cannot use INR settlement. Check FEDAI's SRVA Directory before structuring transactions. Opening a new SRVA (now approval-free since August 2025) still takes 2-4 weeks for KYC/AML due diligence.
- Confusing SRVA with NRE or NRO accounts. NRE and NRO accounts are for individuals (NRIs/OCIs). SRVAs are bank-to-bank accounts for trade settlement. A foreign company cannot open an SRVA — only a foreign bank can, through its correspondent relationship with an Indian AD bank. Your company accesses the SRVA benefit indirectly through your overseas bank.
- Overlooking surplus balance investment opportunities. Many foreign banks leave large INR balances idle in their SRVAs. Since October 2025, these balances can be invested in Government Securities, T-Bills, NCDs, bonds, and commercial papers. The short-term investment limit that applies to FPIs does not apply to SRVA holders — a significant but often missed advantage.
Practical Example
Meridian Engineering GmbH, a German industrial equipment manufacturer, exports precision machinery to Indian buyers worth approximately EUR 5 million annually. Historically, Meridian invoiced in EUR, and its Indian buyer (Tata Projects) paid through the SWIFT network: Tata's bank (ICICI) converted INR to USD, routed the payment through Citibank New York, which then converted USD to EUR and credited Meridian's account at Deutsche Bank Frankfurt. Total settlement time: T+2 to T+3 days. Forex conversion cost: approximately 1.2% across two conversion layers (INR-USD and USD-EUR), or EUR 60,000 per year.
In 2025, Meridian's bank (Deutsche Bank) established an SRVA with ICICI Bank in Mumbai. Meridian now invoices in INR. Tata Projects pays INR 45 crore directly into the Deutsche Bank SRVA at ICICI. Deutsche Bank credits Meridian's Frankfurt account in EUR based on the market INR-EUR rate, with a single conversion spread of approximately 0.4%. New annual forex cost: EUR 20,000 — a saving of EUR 40,000 per year. Settlement time dropped to T+0 or T+1.
Additionally, Deutsche Bank's accumulated SRVA surplus of INR 8 crore (from multiple trade clients) is invested in 91-day Government Treasury Bills yielding approximately 6.8% annualized. On INR 8 crore, this generates roughly INR 13.6 lakh (approximately EUR 14,500) in quarterly interest income — money that previously sat idle in a non-interest-bearing Vostro account.
Key Takeaways
- Nostro accounts (our money abroad) and Vostro accounts (their money with us) are the foundational infrastructure of correspondent banking, regulated in India under FEMA and RBI Master Directions.
- The Special Rupee Vostro Account (SRVA), introduced by RBI Circular No. 10 of July 2022, enables full trade settlement in INR — eliminating the need for dollar intermediation.
- Over 80 SRVAs are active across 30+ countries, with Russia, Sri Lanka, Malaysia, Mauritius, Germany, the UK, and Singapore among the key participants.
- Since August 2025, AD Category-I banks no longer need prior RBI approval to open SRVAs, accelerating network growth.
- SRVA surplus balances can be invested in Government Securities, T-Bills, NCDs, bonds, and commercial papers — with short-term FPI limits waived for SRVA holders.
- Foreign companies trading with India can save 0.5-1.5% in forex conversion costs and achieve same-day settlement through the SRVA channel.
Structuring cross-border payments through India's SRVA framework or optimizing your correspondent banking arrangements? Beacon Filing provides end-to-end cross-border payment advisory, FEMA compliance, and bank coordination for foreign companies trading with India.