Correspondent banking allows banks to conduct business and provide services in foreign countries where they do not have a physical presence. A correspondent bank acts on behalf of another bank, usually handling transactions internationally. This network facilitates international trade and finance. For example, a US importer can purchase goods from a Dutch exporter by transferring funds from their US bank account, through the US bank's correspondent account at a Dutch bank, to pay the Dutch exporter directly in euros. The correspondent banking relationship and networks allow for efficient currency exchange and money transfers globally.

1. Topic: Correspondent Banking Relationship
Renson Tomy
M com Business Finance
Pondicherry University

2. Correspondent Bank
In very simple, Correspondent Bank is a bank that acts on
behalf of another bank, usually a foreign bank
Respondent Correspondent

3. Correspondent Banking
Large commercial bank of one country may maintain demand deposit
account with one another country. This is the network of banking .Transaction
between these banks are known as Corresponding banking relationship.
Uses of correspondent banking
• Helps in efficient functioning of foreign exchange
• Treasury services
• Facilitates international trade and finance
• Manage international investments

4. Why correspondent bank ?
When our domestic bank could not find feasible to establish a bank in foreign country
for providing service to its customer in foreign ,domestic bank create correspondent bank
account with a bank in foreign country
Correspondent bank will charge a small fee for services they provide

5. Example of correspondent banking relationship
US Importer/Buyer Dutch Exporter/Seller
Goods worth € 7,50,000
US Importer desire to
purchase goods from Dutch
exporter
Dutch exporter is willing
to export goods at
€7,50,000

6. Problems of this transaction
• Dollar vs Euro currency exchange rate(US importer
need to purchase Euro currency)
• Transfer of money
Here, the correspondent banking networks play the role.
If the importer have an account in the bank – that have an another
correspondent account in Dutch bank , then he can transfer the
amount very easily. The respondent bank will exchange the dollar
and Euro.

7. US Bank offer
$1.3092 / €1.00
US Importer agrees and transfer
$9,81,900($1.3092 * €7,50,000)
to his US Bank account
US Importer account
Credit $9,81,900
Debit $9,81,900
US Bank Respondent
Account*
Credit $9,81,900
US Bank correspondent
Euro account*
Debit €7,50,000
Dutch Exporter Account
Credit € 7,50,000
Received €7,50,000
Dutch Exporter
US BANK
EURO BANK

8. Deal Completed

9. Nostro and Vostro Acount
• Nostro Account - When a bank have correspondent
account with another foreign bank. They called it as
Nostro account ( Our account on your book)
• Vostro Account- If a bank have Correspondent account
of other bank.They called it as Vostro account ( Your
account but on our books)

10. SWIFT
• Society for Worldwide Financial Transaction
• Enable international communication for commercial banks
• Headquarters in Brussels
CHIPS
• Clear Housing International Payments Systems
• Corporate with US federal Bank System (fedwire)
• Provide clearing house service for inter bank settlement
ECHO
• Exchange Clearing House Limited
• First global FX clearing house -1995
• 1997- Merged with CSL service limited
• 18 currencies are now available for settlement among
60 members

11. THANK YOU