What is Nodal Account and How to Open a Nodal Account in 2022?

In this blog, we will understand the meaning of a nodal account, and how to open, audit, and operate one. Read on!

Nodal Account Meaning

Nodal account is a special bank account required to be opened by businesses (intermediaries) holding money on behalf of vendors and customers.

It ensures that money does not legally belong to the intermediary, at any point in time.

In this blog, we will explain:

  1. the features of a nodal account
  2. how it works, illustrated with some real-world examples
  3. difference between a nodal account and an escrow account

However, before we move on to that part, would you like to test your knowledge?

The rapid evolution of the digital age has paved the way for new and complex business models.

These include a marketplace, payment gateway providers, payment aggregators, etc., that connect consumers to the vendors and hold money on their behalf.

Related Read: What is Payment Gateway and How It Works

These intermediaries hold a certain commission. After that, disburse the rest to entities such as vendors and logistic partners.

Few Real-World Examples on Intermediaries

So, what are some of the best nodal account examples?

Its best to understand this from the POV of an intermediary.


Due to the complex interlink of unknown entities, there is a need to legally safeguard the interests of the consumer. And also, bring down any delay in the payout to all the third parties involved.

Recognizing this issue, RBI introduced guidelines for the formation of nodal accounts.

It ensures that money does not legally belong to the intermediary, at any point in time. So, this makes up for the trust deficit that may exist in the emerging internet economy.

Nodal Account vs Escrow Account

The difference between a nodal and escrow account in India can get confusing.

Especially since, they both act as safeguard places for funds between two parties. Here are the three major difference between them.

Escrow Account In India vs nodal account
  1. Anyone can use an escrow account. From businesses to real estate owners. However, usually only business intermediaries use a nodal account. For instance, payment gateways accepting customer funds on behalf of the merchants
  2. During an escrow account agreement, the buyer and seller know each other. This is not necessarily true in case of nodal account aggreements.
  3. The purpose of an escrow agreement is building a trust factor between parties. On the other hand, nodal agreements are made for ensuring payment safety.

Nodal Account RBI Guidelines For a Marketplace

The RBI guidelines for a nodal account in India aim to regulate payments in the marketplace ecosystem.


  • These guidelines apply to Intermediaries (read as marketplace platforms or aggregators) that collect money from customers on behalf of the vendors
  • It safeguard the interests of customers that make payments through any online or offline payment mode. Moreover, it ensures that the vendors providing the goods or services are duly paid

Businesses that facilitate the delivery of services immediately, need not comply with these guidelines. For example, the sale of travel tickets.

All nodals are internal accounts of the bank. They facilitate the collection of payments by intermediaries from customers.

How Does a Nodal Account Work? : Permitted Credits/Debits

Like we mentioned before, Nodal account serves as a safehouse for funds between two parties.

But how does it work?

Let’s try to understand this through the types of credit and debits in these accounts.


  • Payments from customers buying goods or services
  • Transfers into accounts based on pre-determined terms and conditions
  • Refunds for failed or disputed transactions


  • Payments by a marketplace to various vendors
  • Transfers based on pre-determined terms and conditions
  • Transfers representing refunds for failed, disputed transactions, requested
  • Commissions to the intermediaries at pre-determined rates

There is a need to supervise the functioning of these accounts. Hence, RBI mandates a quarterly audit for them. Audits have to be submitted within 10 days of the end of each quarter.

RBI guidelines mention transferring of funds from these accounts within 2 working days. However, many a time it might not be convenient to do so, even for the vendor. In such cases, the marketplace, the payment service provider and the vendor may get into an agreement.

This agreement allows holding the money for a longer duration in the account. This may be justified with due reason in the audit report.

How to Audit a Nodal Account in India?

Nodal accounts in India need to be audited by a third-party auditor engaged by the intermediary. The auditor needs to be separate from the accountant that does the regular accounting for the intermediary.

The audit needs to certify 2 primary sets of declarations:

  • Payee wise amounts transferred out of the account during the audit period
  • Payee wise classification of the closing account balance during the audit quarter

Apart from this exception for cases such as losses due to fraud, chargebacks, pending disputes and refunds may need to be highlighted to justify the closing balance.

Many a time, especially where the accounting may not be very complex, the onus of accounting may be passed on to the bank by paying audit fees. This is negotiated as part of the nodal account agreement with the bank.

Want to split payments with vendors without managing a Nodal Account?
Integrate with Cashfree’s Marketplace Settlements — get up & running in 30 minutes without managing a Nodal Account
Contact Us
Want to disburse payments without managing a Nodal Account?
Integrate with Cashfree Payment Gateway — get up & running in 30 minutes without managing a Nodal Account.
Contact Us

How To Open a Nodal Account?

Nodal bank account services are provided by most of the larger authorized banks.

After you satisfy a bank’s strict criteria on business reputation, transaction volumes, compliance requirements etc., it will be set up. Setting up the account requires signing a bank account agreement that details the terms of operations and responsibilities.

Who Can Open a Nodal Account?

It is common practice for intermediaries to open a current account with the bank while setting up the nodal one.

In theory, they don’t require the intermediary’s KYC, since it legally belongs to the bank. However, in practice, KYC will be provided if you are setting up a current account.

Their operations can be challenging. Every step like the addition of beneficiaries and approval of transactions needs bank intervention. It can be a slow, time-consuming process. And also, there is little scope to automate these repetitive functions via an API.

Financial technology companies are solving these problems with their innovative suite of payment solutions.

Easy Split: Automating Repetitive Nodal Account Functions

The huge expansion of the internet-based economy has paved the way for a variety of emerging business models. Marketplace, cab service aggregators, logistics platforms and fintech aggregators to list a few.

The flow of money and its disbursement is a complex process. Hence, we need payment solutions that are a lot more advanced than traditional payment gateways.

Check out Cashfree Payments’ Easy Split Feature!

If one were to peak into this flow, the system a marketplace invests in would need to handle:

  • Collection of payments from end customers through different modes into the account. Businesses prefer not handling money that doesn’t belong to them.
  • Defining commissions among vendors, intermediaries and the marketplace
  • Taking care of adjustments in payment flow for transaction-specific elements like discounts, chargers, fees, etc.
  • Disbursing quick payments from the marketplace to vendors (based on different agreed payment terms) for the supply of goods or services
  • Handling marketplace reconciliations
  • Meeting all compliance requirements, such as nodal account audits

It would take considerable effort, time and resources for a marketplace or business to implement such a system. that checks all the above-mentioned points. Taking into account this dilemma, Cashfree Payments engineered a solution.

Cashfree’s Marketplace Settlements lets you as a marketplace focus on building your business. And, it takes care of all your collection, disbursal, compliance needs. We provide an elegant, simple and powerful API that your business can leverage on.

Marketplace Settlements Works in 3 Simple Steps


Simplifying Payments:

  • Ensures faster settlement to vendors within a T+2 settlement cycle (“T” is the day on which the seller will be notified that the goods have been delivered.)
  • Connect your marketplace with Cashfree Payment Gateway to automate accepting and releasing payments in an integrated system
  • Works with other payment gateways and even for cash on delivery orders
  • Allow international vendors to sell through your marketplace without any hassle, and still, follow a T+2 settlement into the vendors home bank account
  • Integrate with our simple and beautiful API’s and get running in under 30 minutes

Helping Finances:

  • Cashfree’s Marketplace Settlements runs on Cashfree’s managed nodal account and doesn’t need you to worry about auditing and compliance
  • Accept only what you earn into your account, make accounting easy
  • Tax computations are faster and simpler by accessing marketplace earnings per transaction
  • Know about all your earnings through a detailed report
>Want to split payments with vendors without managing a Nodal Account?
Integrate with Cashfree’s Marketplace Settlements — get up & running in 30 minutes without managing a Nodal Account.
Contact Us
Want to disburse payments without managing a Nodal Account?
Integrate with Cashfree Payment Gateway — get up & running in 30 minutes without managing a Nodal Account
Contact Us

FAQs on Nodal Account

What is Single Nodal Account/ State Nodal Agency?

According to the latest guidelines, any agency that has access to government funds needs to use a single nodal account under Public Financial Management System (PFMS).

Note: The term ‘single nodal account’ is used interchangeably with ‘state nodal account’.

What is the difference between an Inoperative and a Dormant account?

The tern ‘inoperative’ or ‘dormant’ account are mainly used for savings/current accounts- not nodal accounts.

It is used to describe bank accounts that have had zero transactions over a span of two years.

However, there are some minimum balance charges on dormant account. Basically, the account holder needs to needs to pay a penalty for the same. 

Now these charges will differ from one bank to another. For instance, for HDFC bank, the annual penalty charge is Rs. 10,000 for urban areas and Rs. 5000 for semi urban areas.