Public sector lender, Union Bank of India would be raising interest rates on deposits in October following the recent policy rate hike by RBI, said Chairman and Managing Director of the bank, M V Nair.

"Right now there is about Rs.45,000 crore worth liquidity shortage and in the third quarter government security redemption would not happen as seen in the first two quarters creating further pressure on liquidity...so deposits have to keep up...if that doesn't happen, we would see rates going up," Nair said.

The current growth rate of deposits in the banking industry is 14.5% which is far below the projection of RBI of 18% growth in deposits this fiscal.

"On account of inflation, savers are getting negative returns on their deposits and hence deposit growth is not happening. Going by RBI's indication of a positive return to savers, if this trend continues, deposit rates have to go up," he said.

Nair indicated that the deposits of the bank would grow at 25% this financial year which is higher than the target set by the industry.

"Our loans till last week has grown at 23 per cent year-on- year while deposits have gone up by 21 per cent," Nair said.