Public sector IDBI Bank today hiked interest rates on retail deposits by up to 0.75 per cent varying according to maturities, in line with peers.

However, in an additional offering to woo customers in the current rising interest rates scenario, bank has decided to do away with penalties on premature withdrawals of fixed deposits.

The Mumbai-headquartered bank levies a premature withdrawal penalty of one per cent presently, its Executive Director Sushil Muhnot told PTI. When asked about feasibility of the abolition of penalty, he said this will be a "limited period offer".

In a rising interest rate scenario, customers prefer shifting their deposits to a bank offering higher interest rates and withdrawal of the penalty will help the bank attract more deposits.

Fresh deposits and renewals made after January 1, 2011 will not be charged a withdrawal penalty, the bank said in a statement.

Under the renewed interest rates, which are effective January 4, a 500-1099 days deposit under Rs 15-lakh will fetch an interest rate of 9 per cent as against the earlier 8.25 per cent, it said.

The rate hike has been done in view of "credit demand, inflation and liquidity scenario", the statement added.

Other lenders such as Dena Bank, Kotak Mahindra Bank, State Bank of India and HDFC Bank among others have already hiked their retail term-deposit rates.