A day after the Reserve Bank of India's monetary-tightening measures, banks on  began raising interest rates, effecting the hike for the second time in a month.

Punjab National Bank [Get Quote], the country's second-largest public sector lender, on Wednesday announced a percentage point increase in the prime lending rate (PLR) to 14 per cent, while raising deposit rates by 75-100 basis points. The maximum deposit rate on offer will be 9.75 per cent a year.

Axis Bank, the third-largest private sector lender, however, opted for a more  moderate PLR increase of 50 basis points. In a statement, the bank said its  PLR will increase from 15.25 per cent to 15.75 per cent with effect from on Wednesday. PNB's rate hike will take effect from August 1.

The big boys -- State Bank of India [Get Quote] (SBI), ICICI Bank [Get Quote], HDFC Bank [Get Quote] and HDFC -- have, however, so far, remained silent on how they will respond. SBI's asset-liability committee (Alco), which met within hours of RBI's decision to raise the repo rate, or the rate at which it lends to banks, by 50 basis points and the cash reserve ratio (CRR), or the proportion of capital banks set aside, by 25 basis points, is expected to reconvene tomorrow.

Since April, the central bank has increased CRR by 150 basis points and the repo rate by 125 basis points to tighten money supply and combat inflation, which was estimated at 11.89 per cent in the first half of July.

Bankers said there is little chance that even the big players will be able to absorb the hike. A host of players is expected to join the rate hike list. Punjab & Sind Bank is planning a 50-75 basis points rate increase by the end of the week, while Development Credit Bank [Get Quote] may raise its PLR by 100 basis points to 16.25 per cent.

Even refinance agencies like National Housing Bank (NHB), which have so far refrained from raising interest rates, are now reviewing their costs. "We have not revised PLR for a year as we have been able to absorb the higher cost of funds. But we will have to pass on the costs if we have to pay more," NHB Chairman S Sirdhar said. At present, NHB lends at 10.5 per cent.

The increase in PLR will affect all loan products, ranging from personal loans to car, housing, working capital and term loans availed by companies.

"There will be an increase in interest rates for retail borrowers, but we will aggressively pass on the high cost of funds to sub-PLR borrowers," PNB Chairman and Managing Director K C Chakrabarty said.