Despite of the tight monetary policy of RBI, banks are planning to offer higher deposit rates and lower lending rates on retail loans. This step is prompted by the festive season surrounding the corner.

In fact the two PSU banks- Bank of Baroda and Union Bank of India- have already decided to reduce their home loan rates by 25 basis points. If the RBI announces cuts in repo rate and statutory liquidity rate (SLR) in its forthcoming credit policy on October 24th, these banks are likely to continue with their lower rates even after the festive season.

Bank of Baroda's Chairman and Managing Director, M D Mallya said that his bank's housing and vehicle loans will be offered at 0.25% less interest rates during the festive season. This scheme started from October 1st and will last till the end of this month. "We find it a good opportunity as it helps us make our relationship stronger with our customers. But we are not offering any high interest rates on any of the term deposits,'' he said.

TY Prabhu, Executive Director, Union Bank of India said that his bank was offering a discount of 0.25% on housing loans rates. The bank's fixed home loans are available at 11.25% while the floating home loans are extended between the range of 10.25% and 11%. The bank has started offering these lowered rates since September 29th and is planning to continue the offer until January 15th 2009.

Union Bank's deposits are giving an interest rate of 10.5% for the public and 11% for senior citizens. An official from the bank said that they will continue with the offer if the SLR or repo rate is cut when RBI reviews its credit policy on October 24th.

Most of the banks are now increasing their deposit rates due to the recent development in the money market as well as deposit rates prevailing in the market.

Punjab National Bank has hiked rates on term deposits and will start offering an interest rate of 10.50% for the deposits with a maturity of 1 year to less than 2 years. The revised rates of PNB are effective from October 15th.

Corporation Bank has also resorted to an upward revision of its interest rate for term deposits. The bank is offering an interest rate of 11% to senior citizens and 10.5% to others for deposits with maturity periods between 12 and 15 months. These revised interest rates are applicable for deposits of less than Rs 15 lakh only and will come into effect from October 15th.