India's finances improve on surge in economic activity: Survey

As per survey, most respondent banks and institutions posted improvement or no change in overall financial conditions versus deterioration over previous quarter

India's overall financial conditions have shown a healthy improvement, thanks to low cost of funds, strong liquidity, better external financial linkages and uptick in economic activity, says a survey.

The Financial Conditions Index has risen to 70.3, up from 67.8 in the previous quarter, according to the study jointly brought out by CII and IBA ahead of RBI's fifth bi-monthly policy review on Tuesday.

A reading of 50 divides expansion and contraction.

As per the survey, a majority of respondent banks and financial institutions reported improvement or no change in overall financial conditions as against a deterioration over the previous quarter.

"It is heartening to note that financial conditions of the Indian economy are improving in tandem with the overall macroeconomic outlook," CII Director General Chandrajit Banerjee said in the statement.

"The scale of improvement in the financial conditions index for the current quarter will provide necessary comfort to RBI in continuing and further extending the accommodative monetary policy stance for supporting higher economic growth."

The index is based on a survey of major banks and financial institutions on their expectations of key financial and economic variables determining financial conditions of the Indian economy.

A total of 36 leading banks, including 21 public sector ones, and financial institutions participated in the survey.

Ashwini Kumar, Chairman, Indian Banks' Association (IBA) and CMD, Dena Bank, said: "The directional change in the performance of the financial conditions index augurs well for the Indian economy."

"With RBI reducing the repo rate by 50 basis points just before the beginning of the current quarter, a majority of respondent banks and financial institutions expect the overall cost of funds to decline in the current quarter," he added.

The CII-IBA Financial Conditions Index was launched in the first quarter of 2015-16 to assess short-term financial conditions to facilitate regulatory and policy decisions.

It also aims at providing early signals on turning points and helps track credit flow for industry and service sectors.