For Q1 FY 2021-22, the CII- IBA financial conditions index reported a decline to 59.1 from 72.5 in the previous quarter. This is due to deterioration in the overall financial conditions in the economy which was dominated by the second wave of COVID-19 and its subsequent lockdowns imposed in various states.
The survey stated among the sub-indices, the funding liquidity index declined by 15.7 points, external financial linkages index declined by 20.5 points, the economic activity index declined by 16.5 points, and the cost of funds index declined by 0.9 points. The overall index displays optimism on the financial conditions.
The respondents are fairly optimistic about liquidity, external linkages and economic activity, despite the spread of ongoing pandemic in Q1 of FY 2022 compared with Q4 of FY 2021. However, the readings are not better than Q4 readings due the risks from the second wave of COVID-19.
Chandrajit Banerjee, Director General, CII said, “The overall decline of the Financial Conditions Index can be attributed to the second wave of the pandemic, which halted the economic recovery India had staged after the first wave. The continuous struggle to cope with the spread of the second wave of the novel coronavirus has been discouraging and has impacted both human life and economy adversely, but the good news is that there is still optimism in the expectation of the Banks and NBFCs.”.
On the first quarter of CII-IBA Financial Condition Index, Sunil Mehta, Chief Executive, IBA stated that “overall reading of the index at 59.1 indicates optimism among the participants. Though the first quarter of FY 22 is indeed challenging due to the impact of the second wave, the availability of vaccine and the enabling policy measures from the regulators and government have helped to keep the index above the optimism level.”
The cost of funds index for Q1 dropped marginally and recorded a value of 42.9 as against 43.8 in the previous quarter.
Mehta said, “Since interest rates are benign over the last couple of years and banks have already passed on the benefits to customers, cost of fund reading saw only marginal decrease as compared to previous quarter. As of now, the liquidity position is comfortable and RBI is ensuring the same through several innovative methods. So, banks are in a position to lend to all needy segments of the economy to support economic activity and growth. Since we are seeing reduced infections and aggressive vaccination drive from all authorities, things are expected to improve in the coming quarters.”
This figure is based on Round 23 of the financial conditions expectation survey undertaken in the month of April 2021, wherein a total of 30 entities participated in the survey which includes nine public sector banks, 11 private sector banks, three foreign banks, and one cooperative bank. Representing other financial institutions, six leading NBFCs participated in the survey.
(If you have a story in and around Mumbai, you have our ears, be a citizen journalist and send us your story here. )