The Indian banking sector, particularly Public Sector Undertaking (PSU) banks, experienced a significant trend in the third quarter of Fiscal Year 2026 (October-December 2025), where credit growth consistently outpaced deposit growth. Provisional data indicates that PSU banks reported an average credit growth of approximately 14%, while deposit growth hovered around 11%. This disparity between loan expansion and deposit accretion has led to ongoing funding pressures for banks, reflected in the system-level loan-to-deposit ratio (LDR) reaching an all-time high of 81.74%. Several PSU banks, including Punjab National Bank, Bank of India, UCO Bank, and Indian Bank, reported robust double-digit growth in advances. Bank of Maharashtra and Central Bank of India also demonstrated strong advances growth, nearing 20%. This strong credit demand was primarily fueled by continued traction in the retail and Micro, Small, and Medium Enterprises (MSME) segments, alongside a boost from the festive season and lower Goods and Services Tax (GST) rates. Experts note that public sector banks have, in many instances, outperformed their private sector counterparts in loan growth during this quarter. The improved liquidity conditions, partly supported by a 100-basis point cut in the Cash Reserve Ratio (CRR) and repo rate reductions by the Reserve Bank of India (RBI), have contributed to this credit expansion. However, the persistent challenge of slower deposit mobilization compared to loan demand remains a key area of focus for the banking sector, with implications for net interest margins and future growth sustainability.