Foreign Currency Account (FCA) is a transactional account denominated in a currency other than the home currency and can be maintained by a bank in the home country (onshore) or a bank in another country (offshore).
Exchange Earner’s Foreign Currency (EEFC) account is in the form of a non-interest-bearing current account. Special Economic Zones (SEZ) developers can open, maintain and hold EEFC accounts and credit their foreign exchange earnings to this account. The claims which are settled in rupees by the Insurance companies or the Export Credit Guarantee Corporation of India is not construed as the export realisation in foreign exchange, and thus, the claim amount cannot be credited to this account.
The sum total of the accruals during the current month in the account should be converted into Indian Rupees before the last day of the next month after adjusting for utilisation of the balances for forward commitments or approved purposes. Credit facilities, both non-fund and fund-based, are not granted against the balances held in this account.
A ‘Foreign Currency Account’ means an account held or maintained in a currency that is not the currency of India or Bhutan, or Nepal. Any person who is residing in India can open, hold and maintain a foreign account. ‘Person Resident in India’ is defined under Section 2(v) of the Foreign Exchange Management Act, 1999 (FEMA).
Nostro Account Home Currency of one country is foreign currency for other country. Conversion of foreign currency in to home currency is the fundamental of foreign exchange. Therefore, in order to put through the foreign exchange transaction, the bank which is authorized to deal in foreign exchange, maintains an account with its overseas Bank to keep stocks of foreign currencies. Normally, such account is a current account in the books of the overseas Bank. For example, an Indian bank authorized to deal in foreign exchange maintain an account with overseas bank in USA in US Dollar such account maintained in the foreign currency at foreign center by Indian bank is said as ‘Nostro Account’. Nostro is an Italian word which literally means ‘Our’. So, the ‘Nostro Account’ of the Indian bank with its branch/correspondents in USA is said as ‘Our Accounts with You’.
Working of a Nostro account
For example, an Indian company is doing business with a company in America. Now the Indian company wants to seek payment for the services rendered to the American Company. The Indian company has an account in the State Bank of India while the American company has an account with Wells Fargo. So now that American Company would instruct their bankers (Wells Fargo) to deposit money in State Bank of India’s Nostro account. Once the money is received in State Bank’s Nostro account the Indian company would be informed and their account will get credited for the same.
Vostro Account For the similarly reason, foreign bank of other country authorized to deal in foreign currency maintains an accounts with overseas Bank to keep stocks of foreign currencies (home currency of the country in which the overseas branches/ correspondents are situated) for the purpose of putting through the foreign exchange transactions. For example, XYZ bank of USA maintains an account with a Bank in India in Indian Rupee such account maintained in the foreign currency at foreign center by Foreign bank is said as ‘Vostro Account’. ‘Vostro’ is an Italian word which literally means ‘‘Your’. So, the ‘Vostro Account’ of the foreign bank with Indian bank in India is said as ‘YOUR Accounts with Us’.
Working of a Vostro account
The working of a Vostro account is just opposite to Nostro Account. For example, an American merchant is providing consultancy services to an Indian company. That Indian company has an account with Canara Bank and the American merchant has an account with Bank of America. So now when the payments are to be made for the services rendered, the Indian company will ask its banker (Canara Bank) to deposit the amount in Bank of America’s Vostro account. Once the money gets into Bank of America’s Vostro account they will transfer the same to that American merchant.
Loro Account The terms Nostro (Our) and Vostro (Your) are used in the bilateral correspondence between the concerned two Banks ie the Bank maintaining the account and the Bank in whose book the account is maintained. But in such correspondence when third bank account is referred it is said as LORO account. For example, when XYZ bank of India is maintaining an account with ABC Bank in New York USA in USD when PQR bank of India refers the said account in correspondence with XZY Bank, Now YORK it is said LORO account. LORO is an Italian word which literally means ‘Their’. Loro account means ‘Third Party Account’.
Working of a Loro account
A Loro account is a combination of an ordinary and a Nostro account. Let us take an example of a student seeking admission to a university abroad. That particular student has a bank account with Bank of Baroda and the university has an account with Wells Fargo. For instance, Bank of Baroda does not have an account with Wells Fargo so now when that student wants to deposit his/her tuition fees, Bank of Baroda will instruct State Bank of India (assuming SBI has an account with Wells Fargo) to deposit fee in the University’s account on their behalf.