Government-owned Union Bank of India has launched a new scheme that offers higher interest rates on fixed deposits with specified maturity. This is for the first time in over a year that the a leading bank has raised rates on retail deposits.

Interest rate on deposits with maturity of one to two years has been raised from 6 percent to 6.75 percent.

For the same maturity period, State Bank of India is offering 6 percent interest rate while ICICI, the largest private lender, is offering 6.25 percent.

"Looking at the outflows and our asset-liability position, we have decided to price this particular band attractively," Union Bank of India Chairman MV Nair said.

Following this rate hike, other banks are also likely to increase their deposit rates. A senior SBI official said that his bank was also considering hiking the rates. "We are looking at our asset-liability position. But we have not yet taken a decision," he added.

An increase in deposit rates could pressurize the banks to hike the lending rates as well since higher deposits rates would lead to decline in the net interest margins of the banks. This could raise the cost of borrowing for corporations as well as individuals.

The Union Bank of India would set up an asset management company in partnership with a Belgian this year, a top official of the Bank said. "The process of establishing the asset management company is at an advance stage. The new company will soon be incorporated. We are working out the business plan", bank Executive Director S C Kalia said.