You are here: Home » Finance » News » Others
Business Standard

RBI advises banks to minimise number of nostro accounts

BS reporter  |  Mumbai 

The Reserve Bank of India (RBI) has advised banks to minimise the number of to have better control over reconciliation .

This follows representation from banks expressing practical difficulties and involvement of substantial expenditure in the elimination of outstanding entries in after the lapse of certain time.

Nostro account is maintained by Indian banks in foreign countries where they have operations for facilitating easy clearing of their transactions. These accounts are maintained with their correspondent banks overseas who in turn act as their clearing bank in the foreign country where the Indian bank has its base. Similarly the account maintained by foreign bank in India with their corresponding banks is called "vostro accounts".

has further advised the banks to put in place a system of fast reconciliation and close monitoring of pending items in by top management at short intervals by leveraging technology.

Under the new norms, banks are free to write off reconciled debit accounts of individual value less than $2,500 or equivalent in nostro and mirror accounts originated upto March 31, 2002 against the provision.

In respect of outstanding debit/credit entries of individual value $2,500 and above or equivalent in nostro accounts, banks will continue to make efforts for reconciliation.

In respect of outstanding credit entries of individual value less than $2,500 or equivalent in nostro account originated upto March 31, 2002, banks can either transfer to profit and loss account the credit balance arising out of the netting of entries.

The amount credited to the profit and loss account should be appropriated to the general reserve and will not be available for declaration of dividend.

In 2001, banks were allowed to reconcile their 'nostro' accounts by adopting a prescribed netting procedure in respect of entries pertaining to the period up to March 31, 1996 and remaining unreconciled as on March 31, 2000. The aggregate net debit was transferred to profit and loss account and the aggregate net credit to Sundry Creditors Account in the banks’ accounts for the year ended March 31, 2000.

Banks were also advised to make 100 per cent provision each year in respect of unreconciled debit entries in the nostro accounts which were originated on or after April 1, 1996 and are outstanding for more than three years.

Credit entries originated on or after April 1, 1996 and are outstanding for more than three years were to be transferred to Blocked Account and shown as outstanding liabilities.

All unreconciled credit entries in the nostro accounts originated on or after April 1, 2002 which are outstanding for more than three years may be transferred to blocked account and shown as outstanding liabilities which will be reckoned for the purpose of CRR or SLR.

Banks were required to make 100 per cent provision in respect of all unreconciled debit entries in the nostro accounts originated on or after April 1, 2002 which are outstanding for more than two years (instead of three years as at present).

First Published: Wed, May 13 2009. 00:57 IST
RECOMMENDED FOR YOU