The CII-IBA Financial Conditions Index (FCI) for the third quarter recorded a lower value of 68.9 vis-a-vis 70.4 in the second quarter due to a decline in economic activity index, cost of funds index, and external financial linkages index.

Of the four sub-indices comprising FCI, only the funding liquidity index improved by 4.5 points and registered a value of 72.7 against the preceding quarter.

The FCI, which is based on a survey of 22 banks and financial institutions, in the reporting quarter recorded a value of 68.9 with an overall optimism above the 50-mark for the fourth time in a row, according to a joint statement issued by the Confederation of Indian Industry (CII) and the Indian Banks’ Association (IBA). This value showcases the optimism among banks and FI players, it added.

The Cost of Funds Index registered a value of 77.8 (a drop of 2.9 points against the preceding quarter), External Financial Linkages registered a value of 71 (a drop of 2.4 points) and Economic Activity Index a value of 54 (a drop of 5.4 points).

Overall optimism

Economic activity, though projecting an optimistic outlook, is yet to generate good score from the responses, the statement said.

The survey observed that the overall optimism in the economy persists primarily because of the accommodative monetary policy of the RBI, where the benchmark policy rate was reduced by 110 basis points since April 2019 due to weaker-than-anticipated inflation, deceleration in growth, and softer international monetary conditions.

“The performance of the banking system also improved as non-performing asset (NPA) ratios declined impressively and credit growth accelerated. Most of the banks could declare profit and some of them came out of the prompt corrective action (PCA) framework of the RBI.

“However, financial flows to the economy remained constrained because of the decline in the amount of equity finance raised from capital markets and continued stress in the NBFC sector,” the statement said.

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