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Discount and Finance House of India (DFHI)

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Discount and Finance House of India (DFHI)

The Discount and Finance House of India Limited13 (DFHI) was set up in April 1988 by the RBI jointly with the public sector banks and financial investment institutions (i.e., LIC, GIC and UTI). Its establishment was an outcome of the long-drawn need of the following two types:

(i) to bring an equilibrium of liquidity in the Indian banking system and
(ii) to impart liquidity to the instruments of the money market prevalent in the economy.

In 2004, the RBI transferred its total holding in the DFHI to the State Bank of India’s arm SBI Gilts Limited. Its new name is SBI DFHI. It functions as the biggest ‘primary dealer’ in the economy and functions on a commercial basis. It deals in all kinds of instruments in the money market without any upper ceiling. Operating in ‘two way’ (as a lender and borrower) its objective is to provide needful liquidity and stability in the financial market of the country.

Indian Capital Market

The long-term financial market of an economy is known as the ‘capital market’. This market makes it possible to raise long-term money (capital), i.e., for a period of a minimum of 365 days and above. Creation of productive assets is not possible without a string capital market—the market gained more importance once most of the economies in the world started industrialising. Across the world, banks emerged as the first and foremost segment of the capital market. In coming times many other segments got added to it, viz., the insurance industry, mutual funds, and finally the most attractive and vibrant, the security/stock market. Organised development of capital market together with putting in place the right regulatory framework for it, has always been a tough task for the economies. It is believed today that for strong growth prospects in an economy presence of a strong and vibrant capital market is essential.

Though the capital market of India is far stronger and better today in comparison to the periods just after Independence, the process of emergence has not been easy and smooth. Once India opted ‘industry’ as its prime moving force, the first challenge was to raise long-term funds for industrial establishments and their expansion. As banks in India were weak, small and geographically unevenly distributed they were not in a position to play the pivotal role they played in case of the industrializing Western economies. This is why the government decided to set up ‘financial institutions’ which could play the role of banks (till banks gain strength and presence) and carry on the responsibilities of ‘project financing’.

PS : How to prepare Indian Economy for UPSC ?

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