Country’s two largest banks – State Bank of India and ICICI Bank both increased their benchmark lending rates because of a sharp increase in the cost of funds.

SBI increased its base rate by 40 basis points to 8 per cent, ICICI Bank followed with a 50-bp hike to 8.25 per cent. The new rates are effective from Monday.

The increase in lending rates is mainly due to a sharp increase in banks’ cost of funds. While most banks hiked retail deposit rates by 50-150 basis points in December, short-term rates have also moved up. The interest rate on three-month certificates of deposit has gone up by 250 basis points since the beginning of October.