Banks are set to hike their deposit and lending rates on retail products this week. State Bank of India, ICICI Bank, HDFC Bank, UTI Bank, IDBI Bank and Standard Chartered Bank are among the banks that propose to hike their rates by 25-50 basis points.

HDFC Bank is likely to increase its short-term deposit rates by 25-50 basis points. "Our asset liability committee will meet next week and increase the deposit rates," said an executive with the bank.

State Bank of India chairman AK Purwar said short-term deposit and lending rates were likely to go up but the bank's prime lending rate would remain unchanged for now. Public sector banks were waiting for SBI to set the ball rolling, said the chairman of a leading PSU bank.

An IDBI Bank executive said the bank was closely monitoring short-term interest rate movements in the market and added that the bank was mulling over a 25-50 basis point hike in lending and deposits rates.

IndusInd Bank was the first to increase rates on short-term deposits of less than one year. The 25 basis points hike was effective from October 28.

Rationalising banks' decision to hike interest rates solely on retail deposits, Bhaskar Ghose, managing director, IndusInd Bank, told Business Standard: "Being a new player in the retail space, the bank will now like to increase its retail deposit base. The hike in interest rate is a move in this direction, as we would like to strike a balance between institutional and retail deposits."

With the 25 basis points increase in term deposit rates, the bank's average cost of funds would remain at around 5.2 per cent, he said. IndusInd Bank, however, has decided to keep the benchmark prime lending rate unchanged but has not ruled out the possibility of a future increase.

ICICI Bank is expected to hike home loan and automobile loan rates by 25 basis points. "Today, the bank's loans are cheaper than its competitors, giving it ample room to increase rates," Chanda Kochhar, executive director, ICICI Bank, said. She added that the bank had adopted a wait-and-watch approach, and its rate hike would be in line with market developments.

The decision by a slew of banks to hike interest rates stems from the Reserve Bank of India's move to hike the repo rate by 25 basis points and the increase in the risk weight on home loans and other personal loan products.

Bank CEOs also attributed the proposed increase to the market movement in short-term interest rates. Yields on treasury bills and commercial paper have risen. The 91-day T-bill saw yields rise by 43 basis points in the last one-and-a-half months.