The Working Group of Money Market, in its Report submitted in 1987, recommended, among other things, that a Finance House should be set up to deal in short-term money market instruments.
As a follow-up on the recommendations of the Working Group, the Reserve Bank in India, in collaboration with the public sector banks and financial institutions, set up the Discount and Finance House of India Limited (DFHI) in.
April 1988. DFHI is the apex body in the Indian money market and its establishment is a major step towards developing a secondary market for money instruments. DFHI, which commenced its operations from April 25, 1988, deals in short-term money market instruments.
As a matter of policy, the aim of the DFHI is to increase the volume of turnover rather than to become the repository of money market instruments. The initial paid up capital of DFHI is Rs. 150 crores.
Apart from this, it has lines of refinance from RBI and a line of credit from the consortium of public sector banks.
As the apex agency in the Indian money market, the DFHI has been playing an important role ever since its inception. It has been promoting the active participation of the scheduled commercial banks and their subsidiaries, state and urban cooperative banks and all-Indian financial institutions in the money market.
The objective is to ensure that short-term surplus and deficits of these institutions are equilibrated at market-related rates through inter-bank transactions and various money market instruments.
In 1990-91 the DFHI opened its branches at Delhi, Calcutta, Madras, Ahmedabad and Banglore in order to decentralise its operations and provide money market facilities at the major money market centers in the country.