The recent financial fall of the US banks like Wachovia and Washington Mutual (WaMu) has impelled the Indian banks to move their nostro accounts with safer banks.

Nostro is an account which one bank holds with a bank in a foreign country, usually in the currency of that foreign country. It is especially held to carry out foreign currency transactions.

Most Indian banks have reduced their transactions with banks that have been in trouble. In fact some major private sector banks have almost stopped dealing with overseas banks, including Wachovia, UBS, Fortis and WaMu.

The banks now prefer to carry out their transactions with either local banks or bigger players like Citi, ABN Amro, Bank of America and Barclays Bank.

IDBI Bank deputy managing director OV Bundellu pointed: "There is a complete loss of confidence among international banks and now we can't even gauge the counter-party risk with banks we make transactions with. And most experts believe that worst is far from over. In such a scenario, it's best to transact with banks we are comfortable with."

IDBI Bank has opened nastro accounts only with Indian banks and on an average a local bank will have at least 10-15 nostro accounts.

As most of the Indian Banks are not that well equipped to carry out sophisticated transactions, banks have to rely on foreign banks to open their accounts. Indian Overseas Bank executive director G Narayanan said, "Most Indian banks are not direct members for clearing house, which makes it important for us to open account with foreign banks as well."

Local banks have been hit by the fall of large financial institutions like Lehman Brothers, Wachovia and WaMu. Indian banks feel that the global credit crunch will hit their international operations as most of them are finding it hard to raise foreign currency funds. Bank chiefs in India fear that foreign lenders may not roll over lines of credit granted to their overseas offices.

A reciprocal line of credit is followed by most of the Indian banks whereby they lend to the foreign bank's branch here while the foreign bank extends similar support to the Indian bank's overseas arm.

The banks have now started fearing such agreements and are heading towards the local market to avoid the risk that may arise due to global exposure.