What Is Correspondent Bank?

When your client's bank and your bank do not hold accounts with each other, the payment needs a go-between. That go-between is a correspondent bank. It holds accounts for both banks, or for one of them, and moves the funds along. A route may include more than one such bank. Each one can charge a fee. Swift calls these charges deducts and notes that poor visibility of them creates uncertainty for businesses. You often cannot see the route in advance, so the fee only shows when the money arrives. Ask your client to send the transfer confirmation if the amount credited is lower than expected.

Say a Delhi consultant invoices a client in the United States for USD 1,000. The client's bank has no account with the consultant's bank, so the payment passes through a correspondent bank. That bank deducts a fee, and the consultant's bank credits slightly less than USD 1,000.

• Bank compliance: RBI's April 2026 circular on faster cross-border inward payments asks banks to inform customers on receipt of an inward message and to endeavour to credit same day during forex market hours, so keep your bank's alerts and advices.
• FEMA: Export proceeds must be realised within the period in Regulation 5 of the FEMA Export and Import Regulations, 2026. Extra banks in the chain can add time.
• GST: If less than the invoice amount arrives, section 2(6) of the IGST Act still looks at payment in convertible foreign exchange for the supply. Ask your tax adviser how short payments should be recorded.
• Income tax: Record the invoice value, the deductions and the rupee amount credited, so the difference is explained in your books.

A correspondent bank forwards the payment message and the funds between banks that have no direct link. The steps below show a typical route.

1. Your client instructs their bank to send money to your account.
2. Their bank looks for a route to your bank.
3. The payment passes through one or more correspondent banks.
4. Each correspondent bank may deduct a fee from the amount.
5. Your Indian bank receives the funds, converts them if needed and credits your account.

Compare the amount your client sent with the amount credited, then work out the gap. Use hypothetical numbers to plan ahead.

1. Take the invoice amount, for example USD 1,000.
2. Ask the client for the amount debited and any fee they paid.
3. Check the amount your Indian bank received before conversion.
4. Subtract it from the invoice amount to find the deduction, for example USD 1,000 less USD 975 gives USD 25.
5. Ask your bank for the advice to confirm the figures.

The terms are close. A correspondent bank is any bank serving another bank, while an intermediary bank is one sitting between the sender's and the receiver's banks on a specific payment.

• Every payment uses one: Some payments go directly between banks or via local rails, so not all transfers pass through one.
• The fee is fixed: Fees vary by bank and by route, so ask for each case.
• The Indian bank takes it: The deduction may be taken earlier in the route, before the funds reach India.

• Intermediary bank charges: Fees taken by banks in the middle of a transfer.
• Nostro and vostro accounts: The accounts banks hold with each other.
• SWIFT code: The identifier used in international payment messages.
• Wire transfer: A bank-to-bank transfer of funds.
• SWIFT transfer charges: Fees taken along an international wire.

Every rule and definition on this page is linked to its official source, checked on the dates below.

1. RBI, FEMA (Export and Import of Goods and Services) Regulations, 2026 (FEMA 23(R)/2026-RB), Regulation 5 (realisation) and Regulation 19 (AD bank charges policy) (checked 9 Oct 2026)
2. RBI circular RBI/2026-27/08: Guidelines to facilitate faster cross-border inward payments, 9 April 2026, Paragraphs 3.1 to 3.3 (checked 9 Oct 2026)
3. Swift GPI product page, Deducts and transparency (checked 9 Oct 2026)
4. IGST Act, 2017, section 2 (Definitions), Section 2(6) (checked 9 Oct 2026)