TL;DR
An intermediate bank (also called a correspondent or intermediary bank) is a third-party financial institution that facilitates the movement of funds between two banks that do not have a direct relationship with each other. In international wire transfers to India, US dollar funds often pass through one or two correspondent banks before reaching the recipient's Indian bank. Each correspondent may deduct a fee from the transfer principal.
Table of Contents
What Is a Correspondent (Intermediate) Bank?
Why Intermediate Banks Exist in International Transfers
How Correspondent Banks Affect Transfer Cost
How Correspondent Banks Affect Transfer Speed
Nostro and Vostro Accounts Explained
How to Minimize Intermediate Bank Fees
Frequently Asked Questions
What Is a Correspondent (Intermediate) Bank?
A correspondent bank also called an intermediate or intermediary bank is a financial institution that provides banking services to another bank that lacks direct presence or accounts in a particular country or currency zone. When two banks wish to settle a payment between their respective customers and they do not hold accounts with each other, they use a mutually trusted third institution — the correspondent bank — to process the settlement.
In the context of international wire transfers from the United States to India, a typical transfer chain might look like this: the sender's US bank sends a SWIFT message to its correspondent bank in the US (such as a large money-center bank like JP Morgan Chase or Citibank), which then routes the message to the recipient Indian bank's correspondent bank in New York or another international financial center, which finally routes the funds to the recipient's specific Indian bank branch via the Indian banking system (typically SWIFT to the Indian bank's international nostro account, then internal transfer to the beneficiary account).
Why Intermediate Banks Exist in International Transfers
Not every bank in the world has bilateral correspondent relationships with every other bank. There are roughly 25,000 banks globally, and maintaining direct accounts with all of them would be operationally impossible. Instead, the global banking system works through a hub-and-spoke model: smaller regional banks maintain accounts with larger correspondent banks that have extensive global networks, and those correspondents maintain accounts with each other and with the major banking networks in each currency zone. The result is a chain of bilateral relationships that, together, can route a payment from virtually any bank in the US to virtually any bank in India within one to three business days.
How Correspondent Banks Affect Transfer Cost
Each correspondent bank in the transfer chain typically charges a handling or processing fee for its role in routing the payment. These fees are generally deducted directly from the principal being transferred meaning the recipient receives less than the sender sent. Correspondent bank fees typically range from $10 to $35 per institution, and a transfer passing through two correspondent banks may have $20 to $70 deducted before the funds reach the Indian bank.
This fee deduction from principal is the primary reason recipients often receive less than expected. The sending bank may disclose its own wire fee but cannot always disclose the correspondent fees that will be deducted downstream, as these depend on the routing of the specific transaction through the SWIFT network. Some banks offer "OUR" payment instructions, where the sender pays all correspondent fees upfront, ensuring the full transfer amount reaches the beneficiary though this option typically costs more than the standard "SHARED" or "BEN" fee arrangements.
How Correspondent Banks Affect Transfer Speed
Each correspondent bank in the chain must process, verify, and route the SWIFT message before the next institution in the chain can act on it. This sequential processing means that more correspondent banks in the chain generally means slower delivery. A transfer with no intermediary directly between two banks with a bilateral correspondent relationship — might settle in one business day. A transfer routed through two intermediaries might take three or more business days, particularly if compliance screening or business-hour timing introduces delays at any node.
SWIFT's Global Payments Innovation (gpi) initiative, launched in recent years, has significantly improved international transfer speed and transparency by establishing standards for same-day settlement, full fee disclosure, and real-time tracking of SWIFT payments through the UETR system. Banks participating in SWIFT gpi can track a payment's status in real time through the entire correspondent chain.
Nostro and Vostro Accounts Explained
Correspondent banking relationships are maintained through nostro and vostro accounts. A nostro account (from the Latin for "our") is an account held by a bank at a foreign correspondent bank in the foreign currency for example, an Indian bank's USD account at a New York correspondent bank. A vostro account (from the Latin for "your") is the same account seen from the correspondent bank's perspective the New York bank's account held on behalf of the Indian bank. When a wire transfer reaches the US correspondent bank, it credits the Indian bank's nostro account (USD), and the Indian bank then credits the beneficiary's rupee account through its own internal systems.
How to Minimize Intermediate Bank Fees
To minimize correspondent bank fee deductions: use a transfer service or bank that has a direct correspondent relationship with major Indian banks, reducing the number of intermediaries in the chain; use "OUR" payment instructions if available to have all correspondent fees charged upfront; or use an online remittance service that bypasses the SWIFT correspondent chain entirely by using pre-positioned local currency balances in India this eliminates correspondent bank fee deductions because the delivery is a domestic Indian payment from the remittance company's Indian banking partner directly to the recipient's account.
Frequently Asked Questions
What is an intermediate or correspondent bank in a wire transfer?
A correspondent bank is a third-party financial institution that processes fund transfers between two banks that do not have a direct banking relationship. It acts as an intermediary, routing the SWIFT payment message and funds from the sending bank to the receiving bank on their behalf.
Why does my recipient in India receive less than I sent?
Correspondent banks deduct a handling fee — typically $10–$35 each — directly from the transfer principal as it passes through the chain. If two correspondent banks are involved, $20–$70 may be deducted. The receiving Indian bank may also charge an inward remittance fee.
How many correspondent banks are typically in a US-to-India wire transfer?
Typically one to two correspondent banks are involved. A US bank routes through a large US money-center bank (or its own international correspondent) to an Indian bank's US correspondent, then to the Indian bank itself. The exact chain depends on the specific banks involved and their bilateral relationships.
What is a SWIFT transfer and how does it use correspondent banks?
SWIFT is a secure financial messaging network used by banks to exchange standardized payment instructions. A SWIFT wire transfer sends a message from the originating bank through correspondent bank nodes to the destination bank, with each node processing and routing the message (and associated funds) forward.
What does 'OUR' payment instruction mean on a wire transfer?
'OUR' is a SWIFT payment instruction specifying that the sender pays all fees — including all correspondent bank fees. This ensures the recipient receives the exact amount sent. 'SHA' (shared) means the sender pays their bank's fee and the recipient bears correspondent and receiving fees. 'BEN' means the beneficiary pays all fees.
Can I track where my international wire transfer is?
Banks participating in SWIFT gpi (Global Payments Innovation) can track a transfer in real time using the Unique End-to-End Transaction Reference (UETR) number. Ask your bank to provide the UETR for your transfer and request a SWIFT gpi tracking report if the transfer is delayed.
Do online remittance services use correspondent banks?
Most online remittance platforms bypass the traditional SWIFT correspondent chain by maintaining pre-positioned local currency balances with banking partners in India. When you send via these platforms, the delivery to the Indian recipient is a domestic Indian payment, avoiding correspondent bank fees entirely
which is one reason they can deliver more rupees per dollar than traditional bank wires.
