Nostro Reconciliation Overview

1 Nostro Reconciliation Overview

The Nostro Reconciliation module is provided as part of the Oracle Banking Corporate Accounts. The module allows the collection, management, and reconciliation of external and internal credit and debit transactions for Nostro accounts. NOSTRO accounts are held by a bank in another financial institution in a foreign currency, to facilitate international transactions.

The Nostro Reconciliation Module helps banks ensure that their internal records of transactions and balances in Nostro accounts match the records in external banks or financial institutions where the accounts are held. The reconciliation process is crucial to maintain accurate financial records, identify discrepancies or errors in transactions, and ensure compliance with regulatory requirements.

The following reconciliation tasks can be automated using the Nostro Reconciliation module:

Capture debit and credit entries of internal and external transactions.
Reconcile and match the corresponding entries of internal and external transactions.

Note:

The reconciliation module also allows manual reconciliation of the transaction entries.

Benefits of the Nostro Reconciliation Module

The reconciliation module prevents over-funding of Nostro accounts or excessive use of credit lines for payments settled in a different time zone by providing visibility and predictability on IN and OUT transactions on a day-to-day basis.

The benefits are:

Reduce costs by enabling liquidity optimization
Release payments early while reducing recalls and liquidity risks
Identify transactions that are unexpected or possibly pending
Manual resolution to reduce the following:
- Post-settlement Investigations
- Investigations of unreconciled or unconfirmed entries
Reduce expensive claims when invoicing monthly payment processing fees

Nostro Reconciliation Work flow

The following image illustrates the Nostro reconciliation of three debit transactions of thousand, two thousand, and five thousand dollars from the Nostro account of Bank A held with Bank B. A Rule definition (Rule 1) helps reconcile the internal and external entries for these transactions. Rule 1 allows a tolerance limit of less than or equal to fifty dollars between the aggregated internal and external entries. The first two transactions pass the automatic matching of the transaction entries. Automatic reconciliation fails for the debit transaction of five thousand dollars because the aggregation of external entries exceeds the tolerance limit of five thousand, when a service charge of hundred dollars is added.

Figure 1-1 Nostro Reconciliation Work flow

Description of "Figure 1-1 Nostro Reconciliation Work flow"

Reconciliation Requirements

To automatically reconcile internal and external entries, the system needs to determine the type of reconciliation and the method to perform the reconciliation. How to perform a reconciliation is provided by a rule definition. There can be many possible transaction scenarios. A Rule decision determines the type of reconciliation required and suggests the appropriate rule definition.

Table 1-1 Nostro Entities

Nostro Entity Name	Description
Reconciliation Product	Determines the reconciliation type to be applied and the tolerance limits for different currencies. The reconciliation types are Mirroring and Replication.
Rule Definition	Specifies how to match and reconcile internal and external entries.
Rule Decision	Considers the transaction details and applies the appropriate rule.

Rule Definitions
A rule definition helps identify the internal transaction entries and external statement entries to reconcile and the reconciliation rules to match the identified entries.