State Bank of India beat expectations and posted its highest quarterly profit in nearly seven years on Friday, as the country's biggest lender by assets set aside lower provisions for bad loans and asset quality improved.

Its net profit was ₹39.55 billion ($556 million) for the third quarter ended December 31, versus a loss of ₹24.16 billion a year ago, and analysts' expectations for a profit of ₹32.08 billion, according to Refinitiv data.

This is the bank's biggest quarterly profit since it reported a bottomline of ₹40.50 billion in the March quarter of 2012.

In the current quarter, SBI's provisions for bad loans dropped 21.3% to ₹139.71 billion from a year earlier, the bank said in a stock exchange filing.

A write-back on provisions made for mark-to-market losses helped total provisions drop 68.2%. Net interest income grew 21.4% to ₹226.91 billion, driven by healthy growth in loans.

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SBI, which accounts for more than a fifth of India's banking assets, saw its gross bad loans as a percentage of total loans ease to 8.71% at end-December, from 9.95% in the previous quarter and 10.35% in the year-ago period.

In absolute terms, its gross bad loans eased from the previous quarter to ₹1.88 trillion, helped by a slowdown in slippages.

Graphic: Bad loan ratio at India's state-run banks





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