MUMBAI, Aug 3 (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)