To facilitate dealings in foreign exchange, banks maintain accounts with other banks abroadwhere frequency of transactions is expected. The some of the accounts used by banks are follows:
The term loro is used when the account is referred by a bank other than the account maintaining bank and the bank with which the account is maintained. In other words, it is used in respect of third party accounts. Peoples Bank of India is having an account with Lloyds Bank, London. When the Bank of India likes to refer to this account while corresponding with Lloyds Bank, it would refer to it as ‘loro account’ meaning “their account with you”.
The word vostro is used by the bank with which the account is maintained. A foreign bank may open rupee account with Bank of India. While corresponding with the foreign bank maintaining an account with it, the India bank would refer to the account as ‘vostro account’, which means “your account with us”.
It is used by the bank, which maintains the account to refer to its account with other bank. For a bank in India Nostro account is an account maintained by it with a bank abroad. While corresponding with the foreign bank, India Bank would refer its account with the former as ‘nostro account’, which means “our account with you”. So far India Bank nostro account means the bank account it maintains abroad in foreign currency.