With barely a week to go before Reserve Bank of India’s quarterly review of the monetary policy, banks have begun to raise deposit rates to cope with any increase in cost of funds.

ICICI Bank has increased interest rates on fixed deposits across various tenor and amount buckets in the range of 0.25-1.5%. It has launched an 890-day fixed deposit scheme, which offers an annual rate of 9%.

Among public sector banks, Union Bank of India has increased rates on one-year deposits (below 15 lakh) to 8.3% from 7.5%. Last week, State Bank of India launched a special deposit scheme to garner funds at interest rates as high as 9%, while Punjab National Bank announced a quarter per cent hike, to 8.25%, for large deposits.

Bank of Maharashtra (BoM) also followed suit by offering an annual interest rate of 8.5% on deposits of over three years and 8.25% on deposits of over one year. In case of a single deposit of Rs 15 lakh and above, the depositor will get interest 8.5% for deposits over one year. IDBI Bank has also decided to launch a 600-day term deposit scheme- IDBI `Suvidha Plus’ Fixed Deposit (ISPFD) — at an annual interest rate of 8.75%.

Banks have been raising deposit rates to keep pace with the huge credit offtake in the banking sector. Bankers feel that RBI would focus more on the rapid credit growth, which could fuel the inflation rate and overheating in the economy. Only after the banks put brakes on the super credit growth, would the banks see the lowering of SLR, they say. Early this month, the Cabinet had cleared the ordinance to cut the floor limit of SLR. However, both bankers and analysts are not expecting that RBI will lower SLR requirement in its upcoming review of the monetary policy. This has prompted banks to pay higher rates to earn more deposits.

As per the recent RBI data, credit has risen by 30%, deposit is up by 23% on a year on year basis. Hence, some banks are even offering up to 8.5% on one to three-year deposits. Expecting a credit surge in the last quarter, banks are trying very hard to mobilise deposits, say industry sources.

Liquidity has also dried up substantially. Call rates continue to hover above the 7.5-8%-mark. RBI has been pumping in more than Rs 12,000 crore on an average through repo operations under the two sessions of liquidity adjustment since the beginning of this month.