RBI does not increase interest rates. Bank Boards have been vested with the powers to independently evaluate and prescribe interest rates .
Each Bank has an "Asset Liability Committee"(ALCO) which is empowered by the Board to monitor structural liquidity and interest rate sensitivity on the residual maturities of assets and liabilities in their balance-sheet, arrive at their "net interest margins"(NIMs).
ALCOs look at the "repo" rate of the RBI as the benchmark "call money floor rate". Typically, there is a 3 to 4% difference between average interest rate on deposits and on loans and advances.
RBI prescribes the repo rate after monitoring inflation, money supply (M3), Trade balances, FDI, stock market indices, LIBOR and US inflation, monsoon forecasts and the "yield curve".
RBI reviews its "monetary stance" every quarter and comes up with an annual stance and a mid-term review.
Therefore, the RBI is a watchdog and the Banks are independently working on their NIMs and their ALCOs prescribe interest rates.
The only area where RBI prescribes interest rates is on "priority secotor advances" at the micro level in tune with the "poverty alleviation programmes"