Country's largest lender State Bank of India on Monday raised deposit rates by up to 150 basis points or 1.5 per cent across various maturities, a move that will provide better returns to people with fixed deposits in the bank.

The new rates will become effective from Tuesday.

The decision comes close on the heels of various private and public sector lenders including ICICI Bank, Punjab National Bank, Syndicate Bank and Bank of India raising their deposit rates, in response to RBI Governor D Subbarao's suggestion of giving better returns to depositors.

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SBI, according to a official release, will offer a maximum interest rate of 8.75 per cent for deposits with maturity period of 8-10 years, marking an increase of 100 basis points.

The highest increase of 150 basis points will be in case of term deposits with maturity of 46-90 days. The depositors will earn an interest of 5.5 per cent as against existing 4 per cent.

The decision of SBI to raise fixed deposit rates will prompt other lender to hike their rates to compete for savers money.

In an effort to tide over tight liquidity situation and increase its credit, ICICI Bank raised interest rates on fixed deposits of various tenors by 0.25-0.50 per cent.

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These announcements come after RBI Governor D Subbarao recently asked banks to hike deposit rates and lower lending rates, to raise the level of national savings as well as to encourage investments needed for double-digit growth.

Term deposits of 91-180 days maturity will now fetch customers 6 per cent interest as compared to earlier 5.5 per cent, SBI said.

At the same time, it said, interest rate on fixed deposit with 181 days to less than 1 year maturity has been increased by 125 basis points or 1.25 per cent to 7.25 per cent against existing 6 per cent, it said.