The country's largest private sector housing finance company, Housing Development Finance Corporation Ltd, has reduced its deposit rates by up to 0.25 per cent across various maturities with immediate effect. At the same time, HDFC Bank, promoted by the company, has decided to slash its deposit rates by up to 25 basis points with effect from Friday.

"The reduction in deposit rates will be by up to 0.25 per cent in various maturities with immediate effect," an HDFC spokesperson said here.

India's second largest private sector lender, HDFC Bank has also reduced its deposit rates by up to 0.25 per cent. The reduction will be effective from tomorrow, HDFC Bank's executive director Paresh Sukthankar said in Mumbai on Thursday.

"This reduction is in line with the market trends and taking into account the developments happening in the market in the recent past," Sukthankar said.

Another official of the bank reportedly said, "Most of our rates are lower than competition. We will now lower rates on our flagship tenures, too, by 25 basis points. There is a downward bias in bulk deposit rates too. There is enough liquidity in the market."

Under pressure from the Reserve Bank of India and the union government, a host of lenders, including the country's largest bank, the government-owned State Bank of India and largest private lender, ICICI Bank, have recently reduced their deposit rates.

In a statement, Keki Mistry, managing director and vice-chairman, HDFC, said that the bank awaits the union budget for any long-term changes in the interest rates. In the beginning of this year, the bank reduced the lending rates to offer home loans up toRs 30 lakh at an interest rate of 9.75 per cent, while loans above Rs30 lakh were set to be extended at 10.75 per cent to the new borrowers.

Banks have again been forced to consider lowering of interest rates following the pre-budget meeting held between finance minister Pranab Mukherjee and top executives of public sector banks (PSBs) on 10 July, where the bankers were asked to lower the interest rates.

The RBI has been steadily cutting its benchmark policy rates, but commercial banks have been slow to pass these on to customers.

Analysts say the banks are likely to resist as far as possible the mounting government pressure to sharply cut rates, as they grapple with expensive deposits raised at the height of the credit crisis, and rising bond yields.

India's newly elected government wants its banks to lend more and cheaply to boost economic growth, but the pressure is adding to the risks for shares of both state-run and privately held banks this year.