Discount and Finance House of India Ltd.
Discount and Finance House of India Ltd. (DFHI). a unique institution of its kind, was set up in April 1988. The share capital of DFHI is Rs. 200 crores, which has been subscribed by Reserve Bank of India (10.5%), Public sector banks (62%) and Financial In¬stitutions (26.6%). The Discount House has been es¬tablished to deal in money market instruments in order to provide liquidity in the money market. Thus the task assigned to DFHI is to develop a secondary market in the existing money market instruments.
The establishment of a Discount House was rec¬ommended by a Working Group on Money Market with Shri N. Vaghul, as Chairman set up by Reserve Bank of India. The main objective of DFHI is to facilitate the smoothening of the short term liquidity imbalances by developing an active money market and integrat¬ing the various segments of the 'money market.
At present DFHI's activities are restricted to:
(i) dealing in 91 days and 364 days Treasury Bills, (ii) rediscounting short term commercial bills,
(iii) participating in the inter-bank call money, notice money and term deposits, and
(iv) dealing in Commercial Paper and Certificates of Deposits.
(v) Government dated Securities.
(i) Treasury Bills: Treasury Bills are issued by Re¬serve Bank of India on behalf of the Government of India. Such bills are sold at fortnightly auctions. The Discount House regularly participates in such auc¬tions. Moreover, it provides a ready. market to other institutions/individuals to buy or sell the Treasury Bills. It purchases the same either as outright pur¬chase or on repos/ basis. Reposemeans with the right to re-purchase the same bills again. For this purpose 'the DFHI quotes two-way prices with fine spread. Such operation in Treasury Bills imparts greater flexibility to banks in their funds management. Moreover, with the creation of a secondary market for Treasury Bills, corporate bodies and other institutions could also in¬vest their short term surplus funds in such bills.
(ii) Re-discounting oj Commercial BU/s: The Discount House aims at imparting liquidity to ,commercial bills which have already been discounted by banks and financial institutions. It further re-discounts them and also enables banks arid other institutions to re-dis¬count from it such bills. For this purpose DFHI an¬nounces its bid and offers re-discount rates on a fortnightly basis.
(iii) Call Money Market and Term Deposit: DFHI has been permitted by the Reserve Bank of India to operate in the inter-bank call money market, both as lender and borrower of overnight call and no'tice money up to 14 days. DFHI also renders services to banks in the call money market by arranging or placing Funds for banks.
The DFHI is authorised to augment its resources with lines of credit from public sector banks and refinance lines from the Reserve Bank. The amount and the rate of interest charged by Reserve Bank on refinance would be flexible, so that Reserve Bank can i have its impact on the money market by varying the quantum of refinance and the rate of interest thereon.
