Three state-run lenders have raised their retail term deposit rates by 25-125 basis points. United Bank of India increased interest rates on domestic term deposits below Rs 5 crore by at least 25 basis points, effective immediately. The Kolkata-based lender will now pay nine per cent on term deposits with one-year maturity, compared with 8.75 per cent earlier. Term deposits of 30 days to less than a year will get interest at 8.75 per cent.

Punjab National Bank has increased interest rates on certain deposits by 125 basis points.

UCO Bank raised interest rates on retail term deposits between Rs 1 and Rs 5 crore by 45-50 basis points, effective tomorrow. According to bankers, the tight liquidity situation has compelled lenders to increase deposit rates.

Premium for senior citizens cut

Most state-run lenders, including UBI, PNB and SBI have reduced the premium paid to senior citizens on retail term deposits, by at least 25 bps.

UCO Bank is among the few banks that are still offering a premium of 75 bps on senior citizen deposit rates. The finance ministry is of the view that lower premium will help banks reduce their cost of funds and in turn offer these room to pare lending rates.

However, doubt remains if the move will help in lowering the cost of funds, as senior citizens have a small share in banks' overall deposits. Tight liquidity situation is also likely to leave banks with limited scope to cut lending rates.