Correspondent Banking is the relationship between two banks
which have mutual accounts with each other, or one of them having account with
the other.
In other word, Correspondent Banking is a practice, where a
bank is able to handle business in another city or country, through local bank (that
is present at that city or county, which act as an agent of former and charging
fees for the services.
Function of correspondent Banking:-
A.
Account Services
1.
To handling
of outward payment, receipts of inward payments and collections, through the
account maintained with it.
2.
As agent for collection of export/import bills
as well as checks in their country
3.
Handle and executes all payment instruction of
the client bank, by debiting to the account maintained with it.
4.
Also grant overdraft for temporary needs, say
overnight o fill up short-term funding gaps.
5.
Offers services to investment of overnight
surplus balance, investment of funds in short-term deposits, cash management services
B.
Other Services
1.
Letter of credit advising
2.
LC confirmations
3.
Bankers Acceptances
4.
Issuance of Guarantees
5.
Foreign exchange services
6.
Custodial services
1.
NOSTRO account – “Our account with You”
2.
VOSTRO account – “Your account with Us”
3.
LORO account – “His account with Them”
4.
MIRROR account – Shadow of Nostro account . It
is maintained in two currencies, one of which is the foreign currency and the
other one is the home currency.
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