Public sector lender IDBI Bank raised deposit and lending rates by up to 50 basis points on Tuesday, hours after the Reserve Bank of India announced a slew of measures to tighten the monetary policy.
The bank also raised rates on high-value housing loans in response to RBI's move to tighten norms for these advances.
However, other bankers said they will not raise interest rates immediately.
Interest rates on deposits across various maturities have been raised by 10-50 basis points, a senior IDBI official said.
At the same time, the benchmark prime lending rate (BPLR) has gone up by 25 basis points, he said.
The increase in BPLR would result in an at least 25 basis points increase in housing, car and corporate loans for existing customers.
The bank has also raised the interest rate on high-value home loans of Rs 75 lakh and above by 25 basis points following the central bank's move to raise risk weight on these loans.
RBI's move implies banks will have to keep aside more money to offer home loans of Rs 75 lakh and above.
All the new rates will be effective from November 4, the official added.
The RBI on Tuesday raised key short-term lending and borrowing rates by 25 basis points (0.25 per cent), each, with immediate effect to combat high inflation.
The short-term lending (repo) rate was increased to 6.25 per cent and the borrowing (reverse repo) rate to 5.25 per cent.
According to ICICI Bank Managing Director Chanda Kochhar: "There will be no immediate increase in interest rates after the (RBI) rate hike... There is an upward bias on interest rates, due to a combination of many things, not just the (RBI) rate revision."
State Bank of India Chairman O P Bhatt had a similar view, asserting it will take two to three months for the RBI rate revisions to get reflected in interest rates.
First, the deposit rates will be hiked, following which lending rates will go up, he said.
The transmission mechanism between RBI and rest of the financial system does not work very fast, the SBI chairman said. It always works with a time lag, he said.
Keeping in view the rate hike by the RBI and the inflation and liquidity scenario, the bank has decided to increase retail term deposit interest rates, IDBI Bank said in a statement.
With this revision, the maximum interest on retail-term deposits of 7-10 years' maturity would be 8.25 per cent.
IDBI Bank increased the interest rate by 25 basis points to 6 per cent for term deposits of 91 days to 6 months' tenor.
For fixed deposits with a tenor between 6-9 months, the new interest rate will be 6.85 per cent against the existing 6.75 per cent, while 9 months-1 year fixed deposits will attract an interest rate of 7.25 per cent, an increase of 50 basis points.
In response to the increase in the cost of funds following the raise in deposit rates to 50 basis points and keeping in view the measures announced by the RBI in its second quarter review of the monetary policy on Tuesday, IDBI Bank also reviewed its BPLR and decided to increase it by 25 basis points to 13.50 per cent, it said.
However, it has retained the base rate, or the minimum lending rate for new borrowers, at the existing level.
Home loan rates were also reviewed and floating rates were kept unchanged, except for loans of Rs 75 lakh and above, where the interest rate was increased by 25 basis points due to higher capital adequacy requirements, it added.
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