Optimism in CII-IBA Financial Conditions Index for FY20 Q3

December 17, 2019 - India

The Confederation of Indian Industry (CII)-Indian Banks’ Association (IBA) Financial Conditions Index, a key indicator in assessing short-term financial conditions in the Indian economy, for the third quarter of fiscal 2019-20 recorded an index value of 68.9, showcasing an overall optimism for the fourth time in a row, CII said in a statement.

The optimistic expectation mainly owes to three factors—external financial linkages, funding liquidity index and cost of funds index.

Twenty two entities participated in the survey, which included 10 public sector banks, five private sector banks, two foreign banks and a cooperative bank. Four leading non-banking finance corporations (NBFCs) participated in the survey.

Releasing the index for the third quarter of 2019-20, CII director general Chandrajit Banerjee said India has undertaken important reforms in the last few years in terms of monitoring of financial assets, the bankruptcy process through IBC, amongst others.

RBI, in the recent past has been cutting down the repo rate and it is expected that further rate cut could take place in December. CII feels along with undertaking measures to support the economy, it is also equally important to focus on faster transmission of lower rates to consumers through banks for a sustainable credit flow into the economy.

Among the sub-indices, the highest contribution was made by the cost of funds index recording a value of 77.8. The majority of the respondent banks and financial institutions expect the short-term interest rates (the interbank call rate and three-month bank certificate of deposit rate), long-term interest rate—yield on 10-year government bond and conditions of marginal cost of funds-based lending rate to come down indicating improvement in the cost of funds index .

The funding liquidity index in the current quarter recorded a value of 72.7, 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, mobilisation of equity market recorded the highest value of 86, followed by the issuance in corporate bond market that registered a value of 80.

The mobilisation in money market was recorded at 64 while the liquidity adjustment facility registered a value of 61.

The CII-IBA Financial Conditions Index was launched in April 2015.