Acceptance Houses and Discount Houses

ACCEPTING HOUSES
INTRODUCTION :
An Accepting house is a primarily British institution which
specializes in the acceptance and guarantee of bills of exchange
thereby facilitating the lending of money.
They now have taken on other function as the use of bills has
declined, returning to their original wider function of merchant
banking.
The ‘Accepting houses’ in the City of London have representation
in Westminster by the Accepting Houses Committee which
ensures policy coordination between them,the treasury and the
Bank of England.
Members of the committee have access to discounted price of bills
bought by the Bank of England, although this right has now
been extended to other banks in the UK and abroad.
Definitions :
“A financial institution that guarantees a bill of
exchange , as a result of which it can be discounted on
more favourable terms.”
“An institution that accepts financial instruments and

agrees to honour them should the borrower default.”
Features:
Specialize in accepting bills of exchange
Guarantees the bills
Uses financial reputation to charge a fee or
commission
Uses specialized knowlegde of financial markets
Makes the bill negotiable
Functions:
Provide adequate liquidity in the secondary market
Provide banking facilities in both domestic and
foreign countries
Meet both medium and short term financial
requirements
Main offices are located mainly near the central banks
Meaning of Discount House
 A discount house is a money lender that participates in
the buying and discounting of the bills of exchange
and other financial products.
FEATURES OF DISCOUNT HOUSES
 These provide a ready market for treasury bills
,commercial paper or other money market
instruments.
 They ensure adequate liquidity.
 They are set up as a public company and work
independently of all other financial institutions.
Functions and importance of
Discount Houses
 Main function is to discount the trade bills and
provide liquidity in the market.
 They provide a market for treasury bills , commercial
bills , government guaranteed securities.(the life of
these securities is about five years or less tan five years)
 They borrow from banks at lower rates than the return
on investment , the difference is called profit.
 Discount houses help to stabilise the money market
rates and prevent monetary losses.
Working of Discount Houses
When the goods are sold on credit,the seller
draws a bill on the buyer promising to pay a
specified sum at specified date.
The seller instead of waiting for the maturity

date gets it discounted with the commercial
bank.
The bank after deducting specific discount

charges makes payment to the seller.
On the maturity date the bank will claim the

amount from the person who accepted the bill.
Discounting Service
 In 1988,RBI helped commercial banks by providing
them rediscounting of their bills facility so that the
banks can have abundance liquidity in times if
shortages.
 Through this facility RBI provided financial support to
commercial banks
 But setting up of DFHI has lightened the burden of
RBI.
 Institutions like IDBI ,NABARD,EXIM bank SIDBI and
NHB also play an important role in providing
discounting services.
INTRODUCTION
 Incorporated on March 9, 1988 under the Companies
Act,1956.
 Started its business operations w.e.f. 25th April,1988.
 Set up jointly by RBI, public sector banks and financial
institutions.
 Incorporated initially with an authorised and paid up
capital of Rs. 100 crore, of which 51% was held by RBI,
33% by public sector banks and 16% by other financial
institutions.
FUNCTIONS OF DFHI
 Stabilise the liquidity imbalances by developing primary
and secondary money markets.
 Acts as a depository of the surplus funds of the entire
banking and non banking financial institutions.
 Provides a ready market for commercial bills, treasury bills,
government securities.
 Acts as a specialised money market intermediary for
boosting trade in money market instruments.
 It deals not only in commercial bills but also treasury
bills and other money market instruments.
 Facilitates money market transactions for small and
medium sized institutions.
 Integrates its main market at Mumbai with other
markets at regional centres.
OPERATIONS OF DFHI
Its activities/operations are restricted to :-
 Dealing in 91 days and 364 days treasury bills.
 Rediscounting of short term commercial bills.
 Participating in call money market and term deposit.
 Government dated securities.
 Dealing in commercial paper and certificates of
deposit.

Acceptance Houses and Discount Houses

Uploaded by

Copyright:

Available Formats

Acceptance Houses and Discount Houses

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Acceptance Houses and Discount Houses

Uploaded by

Copyright:

Available Formats

ACCEPTING HOUSES

“An institution that accepts financial instruments and

The seller instead of waiting for the maturity

The bank after deducting specific discount

On the maturity date the bank will claim the

You might also like