CRISIL’s Financial Conditions Index (FCI) reflected a tighter environment in May ahead of election outcome. The FCI value came lower at 0.2 during the month compared with 0.5 in April and 0.4 in May last year.

“The FCI was primarily influenced by the equity market, which saw large swings as general elections progressed and after exit poll outcomes were known. Foreign portfolio investors (FPIs) turned net sellers amid elections uncertainty. Tightening liquidity also put mild pressure on money market rates,” CRISIL said.

Conditions remained benign in the bond and currency markets, supported by external cues such as easing crude oil prices and United States (US) Treasury yields. In contrast to equities, the domestic bond market continued to attract FPI flows as inclusion of the Indian bonds in the global bond indices is imminent.

Liquidity conditions remained benign relative to pre-pandemic decade. In the broader economy, bank credit was stronger than pre-pandemic average. Monitorable shifts amid stability.

While overall bank credit growth remains strong, growth in consumer loans has been moderating gradually since the second half of last fiscal. Bank retail credit growth stood at 17.4 per cent in April, compared with 18.6 per cent six months ago and 19.2 per cent a year earlier.

“Most categories of consumer loans (except housing and education loans) are slowing, reflecting a broad trend of waning credit support to growth. However, housing loans continue to rise, indicating buoyant real estate demand,” CRISIL said.

After just one month of surplus, systemic liquidity switched back to deficit in May. The Reserve Bank of India (RBI), on average, net injected ₹1.38 lakh crore (0.6 per cent of net demand and time liabilities, or NDTL), compared with an average net absorption of ₹0.2 lakh crore (0.2 per cent of NDTL) in April. A drop in government spending and a rise in the credit-deposit ratio (0.8 in May vs 0.79 in April) were the main factors behind the deficit. 

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