CII – IBA Financial Conditions Index improves to 61.1 in Q1 FY 2016-17

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The CII – IBA Financial Conditions Index at 61.1 for Q1 FY 2016-17 shows healthy improvement in the overall financial conditions in the Indian economy vis-à-vis the previous quarter (47.8) reflecting from strong expectations of leading banks and financial institutions of reduction in cost of funds, comfortable liquidity position and better external financial linkages whereas the overall economic activity also signaling improvement, albeit moderately on a quarter on quarter basis.

According to the CII – IBA Financial Conditions Index for Q1 FY 2016-17, there was a strong rebound in the expectation of banks and financial institutions for an improvement in the overall financial conditions index as reflected from a significant improvement in the cost of funds index (70.7), funding liquidity index (67.2) and the external financial linkages index (54.6). While the economic activity index (51.8) also recorded overall improvement, there was a relative decline in the performance from the previous quarter.

The reading of the CII – IBA Financial Conditions Index for Q1 FY 2016-17 at 61.1 was significantly above the 50 mark implying a strong majority of the respondent banks and financial institutions reporting improvement or no change in the overall financial conditions as against deterioration vis-à-vis the previous quarter. A total of 41 major banks and financial institutions with combined total assets (as of March 2016) of more than Rs 72 lakh crore participated in the survey.

Releasing the Index for the first quarter of 2016-17, Mr Chandrajit Banerjee, Director General, CII said “The directional change in the performance of the Financial Conditions Index augurs well for the Indian financial sector as well as for 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”.

Commenting on the performance of the Index, Mr Ashwani Kumar, Chairman, IBA and Chairman & Managing Director, Dena Bank said “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”.

 Performance of CII – IBA Financial Conditions Index for

Q1 FY 2016-17 vs Q4 FY 2015-16 and Q1 FY 2015-16

CII – IBA Financial Conditions IndexSub-indices Q1FY 2016-17 Q4FY 2015-16 Q1FY2015-16
Cost of Funds Index 70.7 44.8 83.0
Funding Liquidity Index 67.2 45.7 78.8
External Financial Linkages Index 54.6 36.0 65.4
Economic Activity Index 51.8 64.6 69.1

Source: CII – IBA Financial Conditions Index – Round 5, April – June 2016

Among the sub-indices, the Cost of Funds Index witnessed the maximum improvement to reach at 71.2 in Q1 FY 2016-17 from 44.8 in the previous quarter. This reflects that the majority of the respondent banks and financial institutions expect the overall cost of funds to decline in the June 2016 quarter.

The Funding Liquidity Index was recorded at 67.5, second highest value among the sub-indices, recording significant improvement from the previous quarter (45.7). The number is significantly higher than the 50 mark, signaling a strong expectation of improvement in the funding liquidity in the Indian financial system.

The External Financial Linkages Index is at 54.5 as against 36.0 in the previous quarter. The Indian financial sector remained unperturbed from the effects of the US Fed interest rate as majority of the banks and financial institutions expect net capital inflows by FIIs to increase in the June quarter.

The Economic Activity Index with a standing at 51.6 witnessed deterioration from 64.6 in the previous quarter. The deterioration on a quarter on quarter basis was led by the performance on the inflation (Consumer Price Index) front which was expected by majority of the respondent banks and financial institutions to deteriorate. However, majority of the respondents expected improvement in growth rate of real GDP vis-à-vis the previous quarter.

The CII – IBA Financial Conditions Index is based on a survey of major banks and financial institutions on their expectations of key financial and economic variables determining financial conditions in the Indian economy.

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