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CII-IBA index sees traction in economy

The CII - IBA Financial Conditions Index for Q3 FY 2020-21 has registered a value that represents expectations of a continuing revival with an overall optimism value of 65.9

CII-IBA index sees traction in economy
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CII-IBA index sees traction in economy

Mumbai: The CII - IBA Financial Conditions Index for Q3 FY 2020-21 has registered a value that represents expectations of a continuing revival with an overall optimism value of 65.9, owing to expectation of improvement in the overall financial conditions in the economy on account of factors namely External Financial Linkages, Funding Liquidity Index and Economic Activity Index.

The survey results indicate that there has been marginal improvement from the previous quarter in External Financial Linkages and Funding Liquidity Index, with a significant improvement expected in the Economic Activity Index. While improvement is expected in most indices, there is a significant fall in the expectation of the respondents in terms of Cost of Funds Index.

Releasing the index for the third quarter of 2020-21, Chandrajit Banerjee, Director General, CII said, "It is a good sign that the forecasted trend of getting growth back is on track and the index reading indicates that there is optimism in the overall expectations.

Considering the situation in the first quarter, wherein the economic activity had almost stalled due to the pandemic driven lockdown, the measures announced by MoF and RBI have started bearing fruits and the index is seeing a movement with upward bias.

Therefore, I would like to congratulate the Ministry of Finance and RBI for being extremely proactive in these difficult times and making regular announcements to support growth in the form of liquidity support, reviving exports, credit support, amongst others, he added. He further added that "The fall in the cost of index value cannot be construed as negative, since the rate of interest is already at very low levels and with due policy support, we may see further fall in lending rates. "

Commenting on the report, Sunil Mehta, Chief Executive, IBA said that though the cost of funding index reading is at sub-optimum, it should not be construed as cost of funds are high for the customers.

The Cost of Funds Index recorded a value of 49.6, which is the lowest contributor for the third quarter. Within the Cost of Funds Index, the Marginal Cost of Funds based Lending Rate recorded the highest value of 62, followed by the Short Term Interest Rate which registered a value of 57.

The Corporate Bond Spread between Top Rated 10 Year Corporate Bond and GoI Bond recorded a value of 42 and Long term interest rate retrieved the lowest value of 38. Overall, the Cost of Funds Index deteriorated by 31 points and has signalled caution in Q3 reading. The External Financial Linkages Index has recorded a value of 68.8 which has improved significantly in comparison to the previous quarter. The value registered indicates optimistic expectation of increase in Foreign Exchange Reserve, Nominal Exchange Rate, Mobilisation through ADRs, GDRs, ECBs & FCCBs and Net Capital Inflows – FIIs. In this quarter, Foreign Exchange Rate returned a value of 88, Mobilization through ECBs / FCCBs / ADRs / GDRs returned a value of 75, Net Capital Inflows – FIIs, returned a value of 72 and Nominal Exchange Rate returned a value of 40.

The Economic Activity Index recorded a value of 66.7 which has improved significantly in comparison to the previous quarter. According to the survey, the value of economic activity index is supported by the values registered wherein the GDP Growth has registered a value of 72, Non-food Bank Credit has registered a value of 73, Inflation has registered a value of 75 and Asset Prices have registered a value of 47.

Kumud Das
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