MUMBAI – State Bank of India Monday joined its smaller peers in raising deposit rates as lenders succumbed to central bank pressure to raise their deposit rates and cut lending rates to help the economy expand at a faster pace.

The country's largest lender by assets Monday said it will raise interest rates on all its deposits, except those maturing in seven to 14 days.

The rates on deposits ranging from 15 days to up to 10 years will be raised by 50 basis points to 150 basis points from Tuesday, the lender said in a regulatory filing.

State Bank of India has already raised deposit rates three times in 2010 as systemic rates have been rising in the face of stubbornly high inflation.

The central bank has raised its key rates six times so far this year, but has since signaled that it will wait for its policy actions to cool inflation before embarking on more moves.

The rate increase by the state-run lender comes after ICICI Bank Ltd., India's biggest private sector lender, said Saturday it will raise its fixed-deposit rates by 0.25 percentage points to 0.5 percentage point from Monday. State-run Bank of India also raised rates on some deposits earlier Monday.

These increases come after the central bank governor Friday said banks need to raise deposit rates, but cut lending rates, a position that implies banks must accept lower profit margins.

"To achieve our collective aspiration of double-digit and inclusive growth, we need to raise the level of national savings and channel those savings into investment," Reserve Bank of India Governor Duvvuri Subbarao said at a banking seminar Friday.

The central bank has been pushing lenders to raise deposit rates for some time. In its September monetary policy review, it said that "if bank credit is not to become a constraint to growth, real rates need to move in the direction of encouraging bank deposits." Already, the strains are evident in the banking system, with deposit growth lagging loan growth, accentuating a high cash shortage.

The governor's call comes at a time when the Indian economy is on a high growth path, clocking 8.9% in the July-September quarter. The government hopes to return to the pre-crisis growth rate of 9% next fiscal year that begins April 2011 and ultimately hopes to achieve double-digit expansion.

Banks have also been borrowing heavily from the Reserve Bank of India since September due to a cash crunch after companies withdrew funds to pay advance taxes and government spending slowed.

The RBI has injected more than 1 trillion rupees ($22.29 billion) each day, on average, through its liquidity auctions since Nov. 8 till recently.

On Nov. 29 the RBI said it will continue to hold a second liquidity auction until Jan. 28 from the earlier deadline of Dec. 16. It also lowered a bond-holding rule, thereby allowing banks to borrow cash up to 2% of their net deposits from the central bank.