Banks may raise rates to battle eroding profits even as RBI stays 'neutral'

India's struggling economy is facing a new challenge: banks are raising interest rates even though the central bank is leaving its rates unchanged, as risks such as surging bond yields and more provisioning requirements erode their profit. HDFC Bank, India's second-biggest bank by assets, on Wednesday became the latest to raise some rates by 10 basis points.

The same day, the Reserve Bank of India (RBI) kept its policy rate unchanged, to "carefully" nurture economic growth. Other major banks are likely to follow.

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