Indian lender Yes Bank became the first bank in the country to raise interest rates on loans and fixed deposits in the wake of moves by the central bank to bolster the ailing rupee.
Mumbai-based Yes Bank, India's fourth largest private sector lender by loans, announced on Wednesday that it will raise the base loan rate by 25 basis points and fixed deposit rates by 25 to 50 basis points, effective Thursday.
Also on Wednesday, rival Axis Bank raised interest rates on fixed deposits by 50 basis points to 400 basis points across tenors, effective immediately. The bank, the 3rd largest private lender, did not raise loan rates.
Analysts said they expect other banks that rely on short-term funds may soon also raise rates.
The central bank earlier this month took steps to squeeze rupee liquidity out of the banking system. However, the rupee has since fallen more than 2 percent, indicating that measures to contain liquidity could stay in place longer than expected.
Shares of Indian banks slumped on Wednesday as investors remain worried that profitability will take a hit in a weakening economy.
Shares of Yes Bank hit their lowest level since July 30, 2012, slumping more than 18 percent before recovering to be off 10 percent. Shares of Axis Bank were down 6.6 percent. The NSE bank index is at a near one-year low.