The CII-IBA Financial Conditions Index based on a survey of leading banks and financial institutions on their expectations of key financial and economic variables determining the financial conditions in the Indian economy, has shown that financial conditions of the Indian economy deteriorated in the fourth quarter. CII - IBA financial Conditions Index for the fourth quarter of FY2016-17 fell below the 50 mark to 48. This shows slowdown in the overall financial conditions in the Indian economy reflecting from expectation of banks and financial institutions that worsening of external financial linkages and domestic economic activity will bring deterioration in economy.
As per the survey signals that the majority of 43 respondents, including public sector banks, private sector banks, foreign banks and non-banking finance companies, have indicated a slowdown in the overall economic conditions of the country. The CII-IBA survey has noted that all the sub-indices witnessed a relative decline which has led deterioration in the Financial Conditions Index. Among the sub-indices, the Economic Activity Index has recorded the lowest level and witnessed maximum decline with expectation of significant deterioration. On the other hand, the Cost of Funds Index and Funding Liquidity Index indicate improvement, reflecting divergence in performance vis-à-vis other sub-indices.
Considering the significant shift in the outlook for financial conditions in the current macroeconomic scenario, CII-IBA has stated that the impact of the contractionary demand shock triggered by the note ban will eventually radiate from cash-intensive activities to virtually every sector of the economy. Further they added that note ban has hit trade and consumption hard and it will impact on the country’s growth and output during the current fiscal. However, the move to a cashless economy will eventually improve savings in financial assets, which will benefit intermediaries such as banks, NBFCs, microfinance and digital money operators.