State Bank of India (SBI), the country's largest bank, on Tuesday launched its SBI Composite Index which will predict the direction of Index of Industrial Production (IIP) at least two months in advance based on the growth of bank's loan book along with other indicators like exchange rates, financial markets, commodity prices, exports and imports and inflation, among others.
With a loan book of over Rs 10 lakh crore, SBI controls about 70% of the credit market which is diversified to reflect the growth in the economy. Performance of SBI Composite Index over a large period of 10 years shows that it followed the trend and variance in the IIP manufacturing index. In fact, in some months, the IIP has followed the direction of the SBI Index.
Arundhati Bhattacharya, chairman, SBI, said in a press conference that it is a forward looking indicator. "SBI internal loan portfolio mirrors the credit demand in the country as we control 70% of the loan market. We will identify the turning points in the manufacturing cycle."
The index will analyse data from both manufacturing and services industries to determine expansion or contraction in the economy. "The SBI Composite Index will help policymakers, market participants and the likes to identify the turning points in the manufacturing cycles in advance and adjust their investment or marketing strategy," it said.
SBI will publish the indicator on a monthly basis. This indicator will track two months in advance the possible trends in official estimates. This forward looking indicator takes into account detailed activity or traction in consumer spending, mining activity, interest rates, inflation, exchange rates, SBI lending and performance of various thematic indices.
The index will capture two components of the manufacturing cycle -- month-on-month and year-on-year growth. Accordingly, two separate indices have been constructed and both are on a scale of 0 to 100. Index above 50 implies growth over previous respective period and less than 50 will suggest a contraction over respective period.
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