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CII – IBA Financial Conditions Index rises for Q4

By Niranjan Mudholkar,

Added 14 February 2020

Reflects the overall optimism prevailing in the domestic economy

growth-2

The Economic Activity Index recorded a value of 55.8 which has improved marginally in comparison to the previous quarter indicating moderate optimism for the quarter.

The CII - IBA Financial Conditions Index for Q4 FY 2019-20 has recorded a value of 60.5, owing to optimism in the overall financial conditions in the economy.
A total of 26 entities participated in the Survey which includes 10 Public Sector Banks, 06 Private Sector Banks, 02 Foreign Banks, and 01 Cooperative Bank. Representing other financial institutions, 07 leading NBFCs participated in the Survey.
Releasing the index for the fourth quarter of 2019-20, Chandrajit Banerjee, Director General, CII said “The index reading for Q4 2019-20 shows the overall optimism prevailing in the economy despite the persisting scenario in the global economy. The Budget 2020-21 tries to address the concerns across the board. The focus on strengthening the financial sector with measures like enhancement of insurance coverage of bank deposits, lowering the limit for enforcement of security interest act by NBFCs, financing of MSMEs through TReDS platform, amongst others, we expect the FCI to show improvement in the next quarter”.
On the fourth quarter of CII-IBA Financial Condition Index, Sunil Mehta, Chief Executive, IBA observed that “Overall reading of the Q4 of the financial index survey conveys optimism among the participants in the current quarter. With Budget providing fillip to household consumption and infra spending, it is quite reasonable to expect improvement in the market sentiments.  Highest reading of funding liquidity index indicates expectation of adequate liquidity in the system which is conducive for the business of the banks.  Lowering of the lending rate by banks in consonance with the repo rate reduction, would help in reducing the cost of funds for the borrowers and credit flow to the productive sectors of the economy”.
Among the sub-indices, the highest contribution was made by the Funding Liquidity Index recording a value of 74, which has improved marginally in comparison to the previous quarter. This index depicts the likely liquidity position in the market. Within the Funding Liquidity Index, Issuance in Corporate Bond Market recorded the highest value of 90, followed by the Mobilization from Equity Market which registered a value of 83. The mobilization in Money Market was recorded at 81 while the Liquidity Adjustment Facility registered a value of 42.
Cost of Funds Index recorded a value of 52.4 which has dropped considerably in comparison to the previous quarter, however, the value still depicts optimism. Within the Index - The short-term interest rates (the interbank call rate & 3-month bank certificate of deposit rate) recorded a value of 35, Long-term interest rate - Yield on 10 Year GoI Bond recorded a value of 50, Corporate Bond Spread at 38 and Marginal Cost of Funds based Lending Rate recorded a value of 87 leading to overall optimism of the respondents.
The External Financial Linkages Index has recorded an optimistic value of 59.6 which is marginally lower in comparison to the previous quarter. The value registered depicts optimism and is largely due to an optimistic expectation of increase in Foreign Exchange Reserve, Mobilization through ADRs, GDRs, ECBs & FCCBs and Net Capital Inflows – FIIs having recorded values of 71, 67 and 65 respectively.
The Economic Activity Index recorded a value of 55.8 which has improved marginally in comparison to the previous quarter indicating moderate optimism for the quarter. According to the survey, this value of Economic Activity Index is supported by the optimism regarding the growth in GDP, Asset Prices and Non-Food Bank Credit having registered a value of 65, 56 and 87.
The CII - IBA Financial Conditions Index was launched in April 2015 to (i) Serve as a key indicator in assessing the short-term financial conditions in the Indian economy, (ii) Provide effective monitoring of current financial conditions for facilitating regulatory and policy decisions, (iii) Provide early signals on turning points in financial conditions, and (iv) Help tracking credit flow conditions for industry & service sectors from various channels.
END

Chandrajit Banerjee, Director General, CII said “The index reading for Q4 2019-20 shows the overall optimism prevailing in the economy despite the persisting scenario in the global economy."

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