By TIOL News Service

NEW DELHI, FEB 18, 2018: THE External Financial Linkages index and Economic Activity Index have shown an improvement in the Q4 FY 2017-18 quarter vis-à -vis the last quarter while there has been a compression in the cost of funds index. Overall, the CII-IBA Financial Condition index for the Q4 FY 2017-18 registered 53.2 which on a year-on-year basis has shown an improvement 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 68 lakh crore.

Releasing the Index for the fourth quarter of 2017-18, Mr Chandrajit Banerjee, Director General, CII said, “Industrial activity and consequent linkages to Financial Sector are contingent on intervention in 3 spaces i.e. Fiscal, Sectoral and Monetary Policy space. There is a clear acknowledgement of actions that have been taken by the Government in fiscal and sectoral space. That is why, External Financial Linkages Index and Economic Activity Index have shown sharp improvement”.

On the performance of the Index, Ms Usha Ananthasubramanian, Chairman of Indian Banks’ Association (IBA) and MD & CEO, Allahabad Bank 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. However, good reading of the External Financial Linkages and Economic Activity Indices underscores the fact that the fundamentals of the economy is improving. That is quite positive.”

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 increase in the money mobilization 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. 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, mobilization from the equity market recorded the highest value of 86, followed by the mobilization in the money market which registered the value of 83. The liquidity adjustment facility has contracted in the current quarter.

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.