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‘India's financial conditions index improves’

Rebound led to cost of funds index rose 58 percent to 70.7 in the quarter under review (Q1) of 2016-17

Policy Pulse
Publish Date: Aug 8 2016 1:27PM | Updated Date: Aug 8 2016 1:27PM

‘India's financial conditions index improves’

The overall financial conditions index in India increased  28 percent successively to 61.1 in the first quarter of 2016-17 from 47.8 in the previous quarter of 2015-16showing good mprovement, a joint study by apex industry bodies has said.

"The improvement shows reduction in cost of funds, comfortable liquidity position and better external financial linkages while economic activity is yet to pick up on quarterly basis," said the study on Financial Conditions Index (FCI) by the Confederation of Indian Industry (CII) and the Indian Banks' Association (IBA).
A rebound led to cost of funds index rose 58 percent to 70.7 in the quarter under review (Q1) of 2016-17 from 44.8 in Q4 of 2015-16, funding liquidity index increased 47 percent to 67.2 from 45.7 and external financial linkages index increased 52 per cent to 54.6 from 36 quarter ago.
"The Financial Conditions Index (FCI) at 61.1 implies a majority of the respondent banks and financial institutions reporting improvement," the report said.
But the Economic activity index dipped 20 percent to 51.8 in last quarter from 64.6 in previous quarter. 
A total of 41 major banks and financial institutions, with combined total assets of Rs 72 lakh crore, participated in the joint survey.
"The directional change in the FCI performance augurs well for the financial sector and the real sectors of the economy. We are certain that traversing the external headwinds, the government and the RBI would continue to focus on the twin objectives of maintaining financial stability and enhancing economic growth," said CII Director General Chandrajit Banerjee in the report.
Among the sub-indices, the cost of funds index improved maximum (70.7) in line with the expectations of the banks and financial institutions.
"Sustainable improvement in the financial conditions is a key imperative for strengthening the health of the Indian financial sector. With the gradual improvement in the overall macro-economic situation, financial conditions index is quite likely to witness upturn in coming quarters," said IBA chairman and Dena Bank Managing Director Ashwani Kumar.
Rise in the funding liquidity index to 67.2 signals a strong expectation of it improving further in subsequent quarters.
Likewise, rise in the external financial linkages index to 54.6 points out that the Indian financial sector remained untroubled from effects of the US Fed interest rate.