- The Discount and Finance House of India (DFHI), founded in March 1988 and operational since April 1988, serves as a money market institution.
- Its principal aim is to ease short-term liquidity imbalances by fostering a robust secondary market for money market instruments.
- DFHI’s establishment followed the guidance of the Vaghul Committee.
- In 2004, the Reserve Bank of India (RBI) transferred its entire stake to SBI Giltz Limited, which subsequently renamed it SBI DFHI.
Major Functions on DFHI
- DFHI actively engages in transactions across all money market segments.
- It participates in borrowing and lending in the call, notice, and term money market.
- Additionally, DFHI buys and sells treasury bills from auctions, along with commercial bills, certificates of deposit (CDs), and commercial papers (CPs).
- To foster an active secondary market, DFHI provides daily bid (buying) and offer (selling) rates for these money market instruments.
- Its presence fills gaps by facilitating buying and selling of these bills in the secondary market.
- DFHI’s role in the secondary market benefits corporate entities and other organizations by enabling them to invest their short-term surpluses and liquidate them as needed.
FAQs
Q: What is Discount and Finance House of India (DFHI)?
A: DFHI is a specialized financial institution established in 1988 by the Reserve Bank of India (RBI) to provide liquidity and support to the Indian financial markets. It operates as a money market institution, facilitating short-term lending and borrowing operations among banks, financial institutions, and the government.
Q: What are the primary functions of DFHI?
A: DFHI primarily engages in the discounting and rediscounting of high-quality bills of exchange, promissory notes, and other eligible instruments. It acts as a secondary market for such instruments, providing liquidity to financial institutions and banks. Additionally, DFHI plays a crucial role in managing the cash reserves of banks and maintaining stability in the money market.
Q: How does DFHI contribute to the development of the Indian financial system?
A: DFHI plays a pivotal role in enhancing the efficiency and liquidity of the money market by providing a platform for banks and financial institutions to manage their short-term funding requirements. By facilitating the trading of money market instruments and offering various financial services, DFHI fosters the growth and stability of the Indian financial system.
Q: What is the regulatory framework governing DFHI operations?
A: DFHI operates under the regulatory oversight of the Reserve Bank of India (RBI), which sets the guidelines and regulations for its functioning. These regulations encompass various aspects such as capital adequacy, risk management, and operational standards to ensure the stability and integrity of DFHI’s operations.
Q: How does DFHI impact monetary policy transmission in India?
A: DFHI plays a crucial role in the transmission of monetary policy decisions by the Reserve Bank of India (RBI) to the broader financial system. Through its operations in the money market, DFHI influences short-term interest rates and liquidity conditions, thereby facilitating the implementation of monetary policy objectives such as controlling inflation and supporting economic growth.
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