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 Institutions (26.6%). The discount has been established 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 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.
At preset DFHI’s activities are restricted to:
1. dealing in 91 days and 364 days Treasury Bills
2. re-discounting short term commercial bills.
3. participating in the inert bank call money, notice money and term deposits and
4. Dealing in Commercial Paper and Certificate of deposits.
5. Government dated Securities
Treasury bills are issued by Reserve bank of India on behalf of the Government of India. Such bills are sold at fortnightly auctions. The Discount House regularly participates in such auctions. Moreover, it provides a ready market to other institutions/individuals to buy or sell the Treasury Bills. It purchases the same either as outright purchase or on repos basis. Repos mean the right to re-purchase the same bills again. For this purpose the DFHI quotes two way prices with fine spread. Such operations in Treasury Bills impart 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 invest their short term surplus funds in such bills.
Re-discounting of commercial Bills:
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 and other institutions to re-discount from it such bills. For this purpose DFHI announces its bid and offers re-discount rates on a fortnightly basis.
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 notice money up to 14 days. DFHI also renders service to banks in the call money market by arranging or placing funds for banks.
The DFHI is authorized to argument its resources with lines of credit from sector and refinance lines from the Reserves bank, The amount and the rate of interest charged by Reserve Bank on refinance would be flexible, so that Reserve Bank can have its impact on the money market by varying the quantum of refinance and the rate of interest thereon.
Small Industries Development Bank of India:
In the field of financing of small scale industries in India, a separate apex development bank has started its operations from April 2, 1990. The small industries Development Bank of India (SIDBI) has been set up as an Act of parliament and the principal financial institution for promotion, financing and development of industry in the tiny and small scale sector. It coordinates the functions of other institutions engaged in similar activities.
The SIDBI was established as a wholly-owned subsidiary of the Industrial Development bank of India. It has taken over IDBI’s financing activities relating to the small scale sector.
The major activities undertaken by this bank are as follows:
1. Refinancing of term loans granted by banks and other eligible financial institutions, namely the state Financial Corporation and State industrial Development Corporations.
2. Direct discounting as well as re-discounting of bills arising out of sale of machinery of capital equipment by manufacturers in small scale sector on deferred credit.
3. Equity type assistance under national Equity Funds and by way of seed capital to entrepreneurs
4. Re-discounting of short term bills arising out of sale of products of small scale sector.
5. Sources support to National Small industries Corporation and other institutions concerned with small industries
6. Share capital and resources support to factoring organizations.