New Delhi, Feb 18 (IANS): While the Confederation of Indian Industry (CII)-Indian Banks' Association (IBA) Financial Conditions Index for the current fourth quarter at 53.2 is showing an increase over the same period a year ago, it marks a fall over the previous quarter and there is also a decrease in the cost of funds index, CII said on Sunday.

Launched in April 2015, the CII-IBA Financial Conditions Index, serves as a key indicator in assessing the short term financial conditions in the Indian economy.

"The CII-IBA Financial Condition index for the Q4 FY2017-18 registered 53.2, which on a year-on-year basis has shown an improvement of five points," a CII release said here.

"The External Financial Linkages index and Economic Activity Index have shown an improvement in the Q4 FY2017-18 quarter vis-a-vis the last quarter while there has been a compression in the cost of funds index," it said.

A total of 29 banks and financial institutions participated in the survey that includes 11 public sector banks, 5 private sector banks, 2 foreign banks, 2 co-operative banks, and 9 non- banking financial companies. According to CII-IBA, the total asset of the respondents are approximately Rs 68 lakh crore.

Among the sub-indices, the highest contribution was made by the External Financial Linkages Index followed by the Economic Activity index. 

"Within external financial linkages index, the respondents are very optimistic about the increase in foreign exchange reserves and expectation of increase in the money mobilisation through the ECBs (external commercial borrowings), FCCBs (foreign currency convertible bonds), ADRs (American depositary receipts) and GDRs (global depositary receipts (GDRs)," the release said.

"The respondents are also quite optimistic about the increase in net capital inflows."

The Economic Activity index during the quarter in consideration recorded a value of 62.5, which was the second highest.

"The increase in economic activity index is supported by the expected increase in non-food bank credit and growth in real GDP. The growth in real GDP recorded a value of 83 and non-food bank credit recorded a value of 90, both higher than the previous quarter," it added.

According to CII, the funding liquidity index for the current quarter registered the value of 60.3, which was a sharp fall from the 85.9 recorded during the previous quarter.

"Within the funding liquidity index, mobilisation from the equity market recorded the highest value of 86, followed by the mobilization in the money market which registered the value of 83," it said.

"The liquidity adjustment facility has contracted in the current quarter."

"Industrial activity and consequent linkages to the financial sector are contingent on intervention in 3 spaces - fiscal, sectoral and monetary policy space. There is a clear acknowledgement of actions that have been taken by the Government in fiscal and sectoral space," CII Director General Chandrajit Banerjee said in a statement.

Commenting on the Index results for the fourth quarter, IBA Chairperson and Allahabad Bank Chief Executive Usha Ananthasubramanian said: "Overall index reading is optimistic about the financial sector though the cost of fund index has contracted significantly. With inflation apprehension looming large, coupled with drying up of excess liquidity from the system, the room for rate action from the central bank does not exist."