NOSTRO / VOSTRO Reconciliation
In respect of old unreconciled entries in NOSTRO Accounts, the RBI vide its Circular DBOD No.BP.BC.67/21.04.048/99 dated July 1, 1999 has allowed, as a one time measure, a netting off procedure.
The auditor may consider the following aspects in respect of NOSTRO reconciliation:
whether a system of periodical reconciliation is in place.
Whether confirmations from the foreign banks are obtained on a periodic basis. This may be either through physical confirmations, swift messages, emails, etc.
whether Information to the controlling office is sent on a timely basis.
whether long outstanding are taken up and reconciled.
random check of the method of reconciliation.
Debits outstanding both in the mirror account and in the Nostro accounts are to be verified and recommend for provision wherever necessary.
Set off the credit against debits only at the permission of the head office for long outstanding entries.
RBI’s circular no. DBOD.BP.BC.16/21.04.018/2001-02 of August 24, 2001 has also clarified that the balances carried in “Sundry Debtors/ Unclaimed Deposits Accounts” under NOSTRO Accounts, represent unreconciled entries which may be large in a few cases and hence susceptible to frauds. Accordingly, the banks should transfer the following balances in the “Sundry Debtors/ Unclaimed Deposits Accounts” appearing in the books of the bank as on September 30, 2001 to distinct “Blocked Accounts” and shown under “Other Liabilities and Provisions” (item no. iv of Schedule 5) in the balance sheet:
(i) the net credit balance arising out of the netting of entries pertaining to the period prior to April, 1996; and
(ii) credit entries originated on or after April 1, 1996 and remaining unreconciled in NOSTRO/ mirror accounts for more than three years.
Further, the balances in the Blocked Accounts will be reckoned for the purposes of maintenance of CRR/ SLR. Any adjustment from the Blocked Accounts should be permitted with the authorisation of the two officials, one of whom should be from outside the branch concerned, preferably from the Controlling branch/ head office if the amount exceeds Rs. one lakh.
The audit considerations for this aspect include:
Examining whether currency wise NOSTRO reconciliation is performed on a day-to-day basis and check for long outstanding items.
Checking whether there exists a policy of following up for outstanding reconciliation items with the counterparties or with the respective banks.
Outstanding debit items over 90 days attract provisioning under RBI provisioning norms.
Examining whether the statement of account is sent to the Vostro account holder and periodic confirmation is obtained and discrepancies, if any, is properly dealt in the books of accounts