Keep a close tab on nostro accounts, RBI advises banks

Use technology to avoid stacking up any unreconciled balances

In a notification issued here, the apex bank suggested banks to put in place a system of fast reconciliation and close monitoring of pending items in nostro accounts by top management at short intervals.  It also advised banks to leverage technology to avoid building up of such unreconciled balances.
The Reserve Bank of India  has specifically asked banks 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.

Easy cash management

Simply put, nostro account is an account that a bank holds with a foreign bank, which are usually in the currency of the foreign country.
 It allows for easy cash management simply because currency doesn’t need to be converted.  And the very word ‘Nostro’ is derived from the latin term “ours”.
Banks may at their discretion, according to the central bank, can write off unreconciled debit entries of individual value less than US$ 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.
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. Further, the central bank said they have 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.
Accordingly, the position regarding long pending outstanding debit and credit entries in nostro accounts of banks was reviewed by the central bank and took the decision for banks to go for minimising nostro accounts.

Full provision

In this context, banks were also advised by the central bank 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 3 years.
Credit entries originated on or after April 1, 1996 and are outstanding for more than 3 years were to be transferred to blocked Account and shown as outstanding liabilities.
Prior to that, the banks have to transfer the aggregate net debit to profit & loss account and the aggregate the net credit to Sundry Creditors Account in the accounts for the year ended March 31, 2000.