Mumbai, April 29: Interest rates are finally heading upwards. This spells bad news for people seeking home loans, but depositors have good reason to cheer.

State Bank of India (SBI), the country’s largest bank, raised home loan rates by a quarter to half a percentage point, deposit rates by a similar margin, devised a special super saver term deposit scheme with a maturity of 6 to 10 years, and raised its benchmark lending rate to 10.75 per cent from May 1.

The SBI rate rise came just a day after Bank of Baroda raised both lending and deposit rates by 25 to 50 basis points.

Punjab National Bank and Oriental Bank of Commerce have followed suit. PNB increased its base lending rate, by 0.50 per cent to 11.25 per cent, and the term deposit rates; Oriental Bank of Commerce raised home loan rates by 0.25 to 1 per cent from May 1.

Banking mavens attribute the rate increase to a strong demand for credit from companies and retail consumers. While announcing its recent credit policy for the slack season, the Reserve Bank had warned against the huge surge in retail lending and winched up the risk weightage on residential housing loans above Rs 20 lakh, prompting banks to now respond with a rate hike.

Private banks are expected to raise interest rates as well next month. Last February, Housing Development Finance Corporation (HDFC) raised the interest on housing loans by half a percentage point .

Banking circles do not rule out HDFC raising housing loan rates again. ICICI Bank, the country’s second-largest bank, has said it is monitoring the situation.

This is the second time this year that SBI has raised home loan rates. In February, it had done so by 25 to 75 basis points. The bank said it would raise both fixed and floating housing loan rates from May 1.

While interest rate on floating rate home loans up to a period of five years will now stand revised at 8.75 per cent from 8.5 per cent, the fixed rate for the same tenure has been upped to 9.5 per cent from 9.25 per cent.

The bank also raised the deposit rates by 25 to 50 basis points for different maturities.

But the big innovation was a super saver term deposit scheme with a tenure of six to 10 years which carries an interest of 7.5 per cent a year. Senior citizens will get 8 per cent. Premature withdrawals will be punished with the rate falling to 2 per cent less than the interest payable on the period the deposit has been with the bank.

The postal deposit still offers a tad more at around 7.7 per cent on a five-year deposit. But unlike it, the super saver scheme brings a tax deduction up to Rs 1 lakh.