The Reserve Bank of India and the Government of India adopted steps and took policy decisions that helped to improve the financial conditions in the current quarter (Q2FY21).
The present quarter survey of the cost of fund index and liquidity index is showing an impressive reading of 80.6 and 71.1. According to the Indian Banks` Association (IBA) – Confederation of Indian Industry (CII), sufficient liquidity in the system and the affordable cost of funds ensured the availability of resources for all activities of the economy.
According to the CII-IBA survey, the reading on the financial condition index rose from 44.2 for April-June 2020 quarter (Q1FY21) to 65.2 for July-September 2020 (Q2FY21) due to the policy decisions and steps adopted to support the economy by the Reserve Bank of India and the Government of India.
According to the Chief Executive of the Indian Banks` Association Mr. Sunil Mehta, the economic activity shall hopefully pick-up due to managing the COVID-19 situation better than the initial stages and movement towards the unlock phase.
Affordable cost of funds and sufficient liquidity in the system, which is indicated by the cost of fund index and the liquidity index readings which were 80.6 and 71.1 in the present quarter survey.
Seven public sector banks, nine private sector banks, five foreign banks, and one cooperative bank along with seven leading NBFCs who represented other financial institutions participated in the survey. According to Mr. Chandrajit Banerjee, Director General, Confederation of Indian Industry (CII), the availability of finances has improved the economy and the economic activity in India has shown signs of revival after the strict lockdown was relaxed.
The early signs of recovery are also shown in several other indicators like petrol consumption, GST collection, electronic toll collection, and peak power demand.
In April 2015, the CII-IBA Financial Conditions Index was launched to serve as a key indicator in assessing the short-term financial conditions in the Indian Economy. The much-needed encouragement was obtained when the index registered an optimistic value of 65.2, hence owing to an expectation of improvement in the overall financial condition of the economy by taking into account all factors like Economic Activity Index, External Financial Linkages, Cost of Funds Index, and Funding Liquidity Index.
