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RBI asks banks to reconcile & closely monitor nostro accounts
The Reserve Bank of India (RBI) has advised banks to minimize the number of nostro accounts to have a better control over reconciliation and put in place a system of fast reconciliation and close monitoring of pending items in nostro accounts by top management at short intervals. Banks are also advised to leverage technology to avoid building up of such unreconciled balances.
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".
RBI has been receiving representations from banks expressing practical difficulties and involvement of substantial expenditure in the elimination of outstanding entries in nostro accounts after the lapse of certain time.
RBI in it’s circular dated May 11, 2009, has reviewed the position about reconciliation of nostro account and treatment of outstanding entries and decided as under:
a) In respect of outstanding debit/credit entries of individual value USD 2500 and above or equivalent in nostro accounts, banks will continue to make efforts for reconciliation.
b) In respect of outstanding credit entries of individual value less than USD 2500 or equivalent in nostro account originated upto March 31, 2002:
(i) Banks may transfer to profit and loss account the credit balance arising out of the netting of entries pertaining to the period prior to April 1, 1996 parked in blocked account.
(ii)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.
(iii) Appropriate disclosure should be made in the Notes to Accounts including the impact on the profit and loss account.
(iv) Any future claim in respect of these entries should be honoured.
c) Banks may at their discretion, write off the unreconciled debit entries of individual value less than USD 2500 or equivalent in nostro and mirror accounts originated upto March 31, 2002 against the provision already held in terms of the circular dated July 1, 1999.
d) All unreconciled credit entries in the nostro accounts originated on or after April 1, 2002 which are outstanding for more than 3 years may be transferred to Blocked Account and shown as outstanding liabilities which will be reckoned for the purpose of CRR/SLR.
e) 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).
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