State Bank of India reports $2 billion Q1 profit on strong loan growth

MUMBAI (Reuters) - Strong loan demand helped State Bank of India, the country's largest lender, beat estimates with $2 billion in April-June profits, but it also witnessed its provisions for loan losses rise sharply.

The state-run bank reported on Saturday its net profit rose around 1% for the first financial quarter to 170.35 billion rupees ($2.03 billion) from 168.84 billion rupees for the same period last year.

That was above analysts' forecasts averaging 167.17 billion rupees, according to LSEG estimates.

SBI's loans grew 15.39%, led by strong demand for retail loans, while deposits grew 8.18%. But loan loss provisions, or funds set aside for potential bad loans, jumped 70% on-year to 45.18 billion rupees.

Growth in SBI's loan book, given its massive size, is seen as an indicator of broader economic trends in the country. Indian banks have reported strong loan growth over the past few quarters, boosted by consumer spending amid firm economic growth.

Net interest income, the difference between interest earned and paid, grew 5.7%. Net interest margins shrank 12 basis points on-year and on-quarter to 3.35%.

Indian lenders have been grappling to garner deposits to fund loan growth, which has raised cost of deposits and hurt margins.

SBI's asset quality improved, with its gross non-performing asset ratio declining to 2.21% at the end of June from 2.24% at the end of the previous quarter.

($1 = 83.7940 Indian rupees)

(Reporting by Siddhi Nayak and Aditya Kalra; Editing by William Mallard)