A day after Reserve Bank of India (RBI) tightened the monetary policy, leading private sector lender HDFC Bank decided to raise deposit rates by up to 0.75 per cent.
The deposit rate hike by HDFC Bank and similar plans by other banks, would translate into a hike in lending rates soon making auto, home and commercial loans more expensive.
State Bank of India (SBI) too indicated that it could raise its deposit rates by at least 0.25 per cent in August-September, even as smaller lender Lakshmi Vilas Bank announced increasing deposit rates by up to 0.50 per cent.
While HDFC Bank will provide higher rates to its depositors from July 30, Lakshmi Vilas Bank will hike rates from August 2.
HDFC Bank will offer 5.25 per cent interest, up from 4.5 per cent, on fixed deposits between 91 days and 6 months and 6.5 per cent (existing 5.75 per cent) between nine months and one year.
Although the higher rates would increase the returns for depositors, they would increase the cost of funds for the banks which will ultimately be neutralised by charging higher rates from loan seekers.
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