The Reserve Bank of India (RBI) announced a huge 75 basis points rate cut on March 27, bringing it to 4.40 percent from 5.15 percent.

Announcing a series of measures to ensure liquidity and stability in the country’s financial system as India battles coronavirus, the Reserve Bank of India (RBI) governor Shaktikanta Das said the monetary policy committee (MPC) met almost a week ahead of the scheduled date.

The RBI said that despite ample liquidity in the system, its distribution was highly asymmetrical.

“To help banks tide over the disruption caused by COVID-19, it has been decided to reduce the cash-reserve-ratio (CRR) of all banks by 100 bps to 3 percent of net demand and time liabilities (NDTL) with effect from March 28 for a period of one year,” Das said.

This reduction would release primary liquidity of about Rs 1.37 lakh crore uniformly across the banking system in proportion to liabilities of the constituents rather than in relation to their holding of excess SLR.

The Reserve Bank of India, on March 27, made the big announcement that the Indian middle class and small entrepreneurs have been waiting for.

The RBI governor has said that all banking institutions can offer three-month moratorium on all loans for a period of three months. The RBI has also allowed banks to restructure the working capital cycle for companies without worrying that these will have to be classified as NPA.

This announcement is big since the economy is under hardship and reeling under job losses and industrial shutdown. The three-month moratorium will permit banks to avoid a large onset of NPAs during the 21-day lockdown and keep their books healthy.

For borrowers too, the three-month moratorium will be helpful to ease the burden on their savings and avoid the fear of turning defaulters. This is the big stimulus the small industry and working middle class have been waiting for.