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Surging credit has caused the loan-to-deposit ratios (LDRs) to climb at Indian banks, raising concerns that the trailing deposit growth and competition for funds would hit margins, according to S&P Global Market Intelligence data and analysis.

Loan growth has stayed strong since the Indian economy recovered from the Covid-19 pandemic, but deposit growth lagged behind as Indian investors sought other asset classes.

These include stocks via direct investments and mutual funds as well as real estate, driven by India's position as one of the world's fastest-growing major economies. This has skewed the loan-to-deposit ratios (LDRs) at most banks, the analysis said.

LDRs at top public sector lenders, including the State Bank of India, Bank of Baroda, Punjab National Bank, Union Bank of India and Canara Bank, increased almost every year since the 2021 fiscal, according to S&P Global Market Intelligence data.

While the ratio has declined marginally at some private sector lenders, this is largely because they were already operating at much higher levels of LDR.

The SBI, the biggest lender by assets, saw its LDR rise to 74.79 per cent as on December 31, 2023, from 67.50 per cent at the end of the fiscal year ended March 2021. Bank of Baroda's LDR increased to 82.39 per cent from 76.55 per cent over the same period.

Among private sector lenders, HDFC Bank saw a sharp increase in its LDR to 114.02 per cent as on December 31, 2023, from 89.85 per cent, following its merger with Housing Development Finance Corp. Ltd., its non-deposit-taking housing finance parent.

But the LDR at peers, such as ICICI Bank and IndusInd Bank, edged slightly lower, S&P Global Market Intelligence data showed.