Housing Development and Finance Corporation (HDFC) has increased interest rates on home loans for both existing and new customers by 25 basis points with immediate effect. State Bank of India and IDBI Bank are expected to follow suit.

The asset liability committees (ALCO) of most banks are expected to meet next week to decide on hike in interest rates.

Hike in interest rates come after Reserve Bank of India (RBI) raised the rate at which RBI lends to banks and the rate offered by RBI to banks on deposits by 25 basis points on January 25, 2011. “Hike in interest rates is certain. Our ALCO will meet next week to decide on hike,” a senior official of SBI said.

“This is in line with the interest rates in the economy, which have hardened due to an increase in policy rates, inflation and liquidity in the domestic market,” said HDFC press release.

Other than the housing finance leader, four more banks including Indian Bank, Indian Overseas Bank (IOB), Bank of India (BoI) and Dena Bank hiked their lending rates. Bank of Baroda (BoB) and Oriental Bank of Commerce (OBC) raised the deposit rates on the other hand.

BoB raised it deposit rates by 50 basis points to 9.10 per cent for 444 days deposits till March 2011 and for deposit of 1-year and up to 443 days to 8.75 per cent, with effect from Wednesday.

OBC has decided to raise the fixed deposit rates by 25 basis points for deposits of varying maturities. It will pay the highest rate of 9.25 per cent for 500-day deposits.

Indian Bank has announced an increase in base lending rates by 50 basis points to 9.5 per cent with effect from Tuesday.

Besides, IOB has also raised its base rate from 9 per cent to 9.5 per cent with effect from Tuesday. BoI raised its base rate and BPLR by 50 basis points each to 9.5 per cent and 13.75 per cent, respectively with effect from February 3.

Dena Bank raised its minimum lending rate, or the base rate, by 0.50 per cent to 9.45 per cent with effect from February 2.

Within a week of RBI hiking its key policy rates, Punjab National Bank (PNB) on Monday raised benchmark prime lending rates by 50 basis points to 13 per cent. Base rate was also hiked by 50 basis points to 9.50 per cent. PNB and Punjab & Sindh Bank (P&SB) have also raised their deposit rates by up to 100 basis points for various maturities.

PNB will now give a peak interest rate of 9.25 per cent on deposits with a maturity period of 1,111 days, while P&SB will give the same interest rates for deposits of 1,000 days. P&SB has also announced that it would give an interest of 8.25 per cent and 9 per cent on deposits with maturity of 222 days and 500 days, respectively.

Meanwhile, to garner low cost bulk deposits, a few banks also hiked interest rates on non-resident Indian (NRI), mainly FCNR (foreign currency non-resident) and NRE (non-resident external) deposit rates. Bank such as SBI, PNB, Union Bank of India (UBI) and Bank of India have revised interest rates. Banks are increasing interest rates on non-resident Indian (NRI) deposits to attract NRI deposits. With banks in many foreign countries such as the US and western Europe offering very low interest rates on deposits, NRIs can look at parking funds in India.

SBI is has hiked interest on euro deposit for maturities over 1-year and less than 2 years to 2.57 per cent from 2.47 per cent at present. “NRIs are affluent. By targeting NRIs, banks can raise deposits are lower costs. Each bank has different interest rate for different currencies,” said the SBI official.

An FCNR account can be opened in four foreign currencies — pound sterling, US dollar, Japanese yen and euro. For the purpose of opening an account, remittance in foreign exchange, in the same currency, should be received in India. The account can be opened only for fixed deposits with a minimum maturity of one year and a maximum maturity of three years.