What is a correspondent bank?

A correspondent bank is the overseas bank your Indian bank uses to send and receive money in a foreign currency. When a client in Canada pays a marketing agency in Hyderabad in US dollars, the dollars usually settle through a bank in the United States before your Indian bank credits you in rupees.

What does a correspondent bank mean in simple words?

A correspondent bank is a bank that provides services to another bank, such as holding its foreign currency account and making payments for it. RBI defines correspondent banking as the provision of banking services by one bank, the correspondent bank, to another bank, the respondent bank.¹

• Correspondent: the bank providing the services, often abroad.¹
• Respondent: the bank using them, such as your Indian bank.¹
• In practice: your Indian bank holds accounts with correspondent banks abroad for each major currency, and payments in that currency pass through them.

Why does a correspondent bank matter for Indian exporters and freelancers?

A correspondent bank matters for Indian exporters and freelancers because it decides the route a foreign currency payment takes, and often explains why the amount received is lower than the amount invoiced.

• Deductions: a correspondent or intermediary bank in the chain may deduct a fee from the payment before it reaches India. See intermediary bank charges.
• Delays: each extra bank in the chain can hold a payment for checks, for example when the sender's name or address is missing.
• Bank compliance: RBI's KYC Directions for commercial banks require cross-border wire transfers to carry accurate, complete and meaningful originator and beneficiary information.¹

How does a correspondent bank work?

A correspondent bank works by making or receiving payments on behalf of another bank. The European Central Bank describes correspondent banking as an arrangement in which one bank, the settlement or service-providing bank, makes or receives payments on behalf of another bank, the customer or user bank.²

A simplified chain for a dollar payment from a client in Europe to India looks like this:

1. Client's bank: sends the payment message using your bank's BIC.
2. Correspondent: the dollars move to your Indian bank's correspondent bank in the United States, sometimes through another intermediary.
3. Nostro credit: the correspondent credits your bank's account held with it (its nostro account). See nostro and vostro accounts.
4. Your credit: your Indian bank converts the money and credits your account in rupees, or in foreign currency if you hold an EEFC account.

How do you use correspondent bank details when you invoice?

You use correspondent bank details only when your bank publishes or confirms them for the currency you bill in.

• Bank instructions: some banks ask foreign clients to route payments to a named correspondent bank for a given currency, so use only the instructions your bank publishes or confirms.
• Full details: give the client your full legal name and address so no bank in the chain holds the wire.
• Queries: if your bank passes on a query from its correspondent, answer it with the invoice and client details to release the payment.

For example, a translator billing a Canadian client in US dollars puts the bank's dollar correspondent details on the invoice only if the bank's inward remittance instructions list them. The costs and how to reduce them are covered in SWIFT transfer charges.

What is the difference between a correspondent bank and an intermediary bank?

A correspondent bank is defined by its ongoing relationship with another bank, while an intermediary is any institution that handles the middle part of a particular wire. RBI's KYC Directions for commercial banks describe an intermediary as an RBI-regulated institution that handles an intermediary element of the wire transfer in a serial or cover payment chain, receiving and transmitting it on behalf of the ordering and beneficiary institutions.¹

In a cross-border payment, the intermediary is often a correspondent bank.

What do people get wrong about correspondent banks?

People most often blame the client or their own bank for a short payment, when a bank in the middle of the chain may have deducted a charge.

• Short payments: deductions depend on the charge option (OUR, SHA or BEN) and the route. See OUR, SHA and BEN charges.
• Copied details: correspondent details from another bank or an old list can send the money the wrong way.
• Ignored queries: a correspondent's query left unanswered keeps the payment on hold.
• AML: correspondent banks run their own anti-money laundering checks on the payments they process.¹

Which terms are related to correspondent bank?

These terms come up alongside correspondent banks on cross-border payments.

• Nostro and vostro accounts: the accounts banks hold with each other.
• Intermediary bank charges: fees deducted by banks in the chain.
• BIC: the code that addresses each bank in the chain.
• OUR, SHA and BEN charges: the options that decide who pays bank fees.
• SWIFT gpi and UETR: tracking for a payment as it moves between banks.