The CII-IBA Financial Conditions Index for the first quarter of the current financial year (FY21) has dropped to 44.2 from 60.5 in the fourth quarter of FY20 on expectations of deterioration in the economic conditions in the wake of Covid-19 pandemic.
Also, organisations across the world are uncertain about the whereabouts of their cash flows and business prospects. India is not an exception, said the Confederation of Indian Industry (CII) and Indian Banks’ Association (IBA) in a joint statement on Sunday.
The economic conditions turned for bad because of worsening funding liquidity, external financial linkages and economic activity index. However, respondents are quite optimistic with respect to the availability of funds at a lower cost. The cost of funds index rose sharply to 83.5 for Q1FY21 (ending June 2020) from 52.4 in Q4FY20 (March 2020).
Lockdowns across the world brought economic activities to a standstill. A total of 22 entities participated in the survey, including nine public sector banks, five private sector banks, two foreign banks, and one co-operative bank. Representing other financial institutions, five leading finance companies also participated in the survey.
Sunil Mehta, chief executive officer of IBA, said: “Low reading of the overall index for the Q1FY21 is on the expected lines. Preventive measures like lockdown would have adverse effect on the economy.”
Banks are playing a significant role even during this pandemic. Banking services are being offered to the general public without any disruption.
Going forward, the gradual lifting of the lockdown would help the economy rebound at a faster pace and would help the businesses and thereby employment, he added.
Chandrajit Banerjee, director general of CII, said the impact of Covid-19 had been much worse than the financial crisis faced by the world, including India, in 2008.
While the lockdown was necessary to mitigate the impact of coronavirus, it has had dire implications on the financial conditions of the economy.