Discount And Finance house of india

INTODUCTION
 Discount and Finance House of India Ltd. (DFHI), a
unique institution of its kind, DFHI was set up in April
1988 by Reserve Bank of India jointly with public
sector banks and all India Financial Institutions to
develop the money market and to provide liquidity to
money market instruments as a sequel to Vaghul
Working Group recommendations.
 The question of setting up of discount house in India
was considered by the banking commission in the
early 1970s it was thought that the need for a
discount house in India can arise when the bill market
develops sufficiently. Till then. The merchant banking
institution could be set up to take up acceptance and
discount business among other activities.
 With the introduction of new money market
instruments such as Certificates of Deposits
and Commercial Paper, DFHI began dealing
in these instruments as well.
 With effect from 1992-93, DFHI was
authorized to deal in dated Government
Securities. After DFHI was accredited as a
Primary Dealer in February 1996, its
operations significantly increased particularly
in Treasury Bills and dated Government
Securities .
 During these years, DFHI opened its branches at
Ahmedabad, Bangalore, Calcutta, Chennai, New
Delhi and very recently at Hyderabad with a view
to catering to the requirements of the small and
medium sized institutions operating at these
centres and at the same time integrating the
markets at these regional centres with main
money market at Mumbai
 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
Institutions (26.6%). The discount has been
established to deal in money market instruments
in order to provide liquidity in the money market.
Objective of DFHI
 To even out the liquidity imbalances in the banking system i.e.
to balance the demand with the supply for short term
finance in the money market.
 To promote secondary market in short term money market
instruments i.e. to be an active trader in money market
instruments rather than a mere repository, and thereby,
impart improved liquidity to short term money market
instruments.
 To integrate markets at regional centers with the main
market at Mumbai, through its network
 Provide safe and risk-free short-term investment avenues to
institutions; DFHI being an institution promoted by the
public sector banks/financial institutions and RBI, enjoys
excellent credit rating in the market
•Provide greater liquidity to money market instruments.
•Facilitate money market transactions for small and
medium sized institutions who are not regular participants
in the market.
•DFHI provides the 'Constituent SGL' Account facility
which enables even those entities which otherwise do not
have an SGL Account facility with the RBI to reap the full
benefits of investing in government securities.
 About DFHL
DFHI was incorporated on March 8, 1988 under the Companies Act, 1956 with
an authorized share capital of Rs.100 crore subscribed by the RBI (Rs.51 crore),
Public Sector Banks (Rs.33 crore) and All-India Financial Institutions (Rs.16
crore).
DFHI mobilises funds/resources from commercial/cooperative banks, financial
institutions and corporate entities having lendable resources (which individually
may not represent tradable volumes in wholesale market) which are pooled
and lent in the money market.

DFHI serve as a base, to broaden the secondary market and give an

assured liquidity to the instruments which is a pre-requisite for a
developed money market..

DFHI with its large customer base and reach has provided higher
liquidity to the borrowing institutions at market related rates as also
helped the small banks, institutions and corporate entities to secure
competitive price for their surplus resources
Money Market Instruments in which
DFHI Deals
DFHI deals in the following instruments/products
 Money Market Instruments in which DFHI
Deals deals in the following
instruments/products
 Treasury Bills
 Dated Government Securities
 Certificates of Deposit
 Commercial Papers
 Call (overnight) Money
 Notice Money
 Term Money
 Derivative Usance Promissory Notes of Commercial
Banks
 Interest Rate Swaps/Forward Rate Agreements
 CONSTITUENT SGL ACCOUNT
 DFHI has opened a 'Constituent SGL' account
with the RBI. According to the procedure laid
down by RBI, customers of DFHI can open
Constituent SGL Accounts with DFHI. Their
holdings in T-Bills and dated government
securities are transacted through this account
 When a purchase is made from DFHI, the
corresponding security will be transferred from
DFHI's normal SGL Account to the 'Constituents
SGL' Account. A certificate of holding will be
issued by the DFHI for the records of the
investor. As and when maturity proceeds and
interest (if any) are received, the same will be
passed on to the constituent
 In case the constituent desires to disinvest,
the same can be done and DFHI will transfer
the security from its Constituents Account
on receipt of authorisation from the holder.
 Apart from transactions with DFHI, other
purchases of Government securities can also
be parked in this account and sales from
available balances can be made. In case of
purchases parked, either SGL transfers from
the sellers or duly endorsed physical scrips
will have to be submitted to DFHI for
necessary transfers in the RBI books
 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
recommended by a Working Group on
Money market. The main objective of DFHI
is to facilitate the smoothening of the short
term liquidity imbalances by developing an
active money market and integrating the
various segments of the money market.
Investment opportunity to PSUs
and Corporates in Call Money
 Public Sector Organiation (PSUs) and
Corporates are allowed to lend their
surplus resources through DFHI in money
market, subject to approval of RBI. The
minimum size of transaction as stipulated
by RBI at present is Rs.3 crore.
 The Corporate, Provident Fund and Co-operative banks,
regularly invest in Government securities either to meet
their statutory obligations or to invest their surplus funds.
Government securities and Treasury Bills are default-free
investments and at the same time provide reasonable
returns. Investments in Government securities can be in
physical or demat form.

 Those who wish to hold such securities in demat form and

who do not have SGL account with RBI may open
Constituent SGL account with DFHI. It is possible for
Corporate/Provident Fund/Co-operative banks to
purchase/sell and hold Government securities through such
an account. Purchases/sales etc. can be settled by
negotiations either through DFHI Dealers at branches or
through DFHI Dealing Room in Mumbai, Head Office
 The affairs of the Company are managed by a
Managing Director under the overall supervision
of the Board of Directors. The Board is
represented by very senior persons/Chief
Executives from Reserve Bank of India,
Nationalised Banks and Public Financial
Institutions. By virtue of SBI being a major
shareholder, it has been lending the services of
one of its Chief General Managers who functions
as the Managing Director of the Company. The
Managing Director is assisted by a team of senior
executives with rich experience in treasury
activities. There are also currently few officials on
deputation from RBI/SBI assisting the Company