Financial conditions deteriorate in January-March: CII–IBA report

New Delhi: An index mapping the country’s short-term financial conditions has plunged over 12 points for the fourth quarter of the current fiscal ending March 31, as compared to the previous quarter.

The CII–IBA Financial Conditions Index stood at 53.2 for the fourth quarter (Q4) of 2017-18 as against 65.3 in the October-December period. However, the External Financial Linkages index and Economic Activity Index have shown an improvement in the ongoing Q4 vis-a-vis the previous quarter, while there has been a compression in the cost of funds index.

The index in the current January-March quarter has shown an improvement on a year-on-year basis of five points. A total of 29 banks and financial institutions participated in the survey that includes 11 public sector banks, 5 private sector banks, 2 foreign banks, 2 co-operative banks, and 9 non-banking financial companies. The total asset of the respondents are approximately Rs 68 lakh crore.

Chairman of Indian Banks’ Association (IBA) and MD & CEO, Allahabad Bank Usha Ananthasubramanian said: “Overall index reading is optimistic about the financial sector though the cost of fund index has contracted significantly. With inflation apprehension looming large coupled with drying up of excess liquidity from the system, the room for rate action from the central bank does not exist.”

Among the sub-indices, the highest contribution was made by the external financial linkages index followed by the economic activity index. Within external financial linkages index, the respondents are very optimistic about the increase in foreign exchange reserve and expectation of an increase in the money mobilisation through the ECBs, FCCBs, ADRs and GDRs.

“The respondents are also quite optimistic about the increase in net capital inflows. The economic activity index recorded a value of 62.5, which was the second highest. The increase in economic activity index is supported by the expected increase in non-food bank credit and growth in real GDP,” CII said in its index report.

The growth in real GDP recorded a value of 83 and non-food bank credit recorded a value of 90, both higher than the previous quarter. The funding liquidity index registered the value of 60.3. Within the funding liquidity index, mobilisation from the equity market recorded the highest value of 86, followed by the mobilisation in the money market which registered the value of 83. The liquidity adjustment facility has contracted in the current quarter.

PTI