(Adds details) MUMBAI, Oct 18 (Reuters) – Indian private lender HDFC Bank reported a higher-than-expected profit for the second quarter on Saturday, on steady loan growth and higher trading income even as lending margins remained weak. The country’s largest private lender by market capitalisation posted a standalone net profit of 186.4 billion Indian rupees ($2.12 billion) for the three months ended September, compared with 168.21 billion rupees a year earlier. Analysts had expected a profit of 177.18 billion rupees, according to data compiled by LSEG. While net interest income rose 4.8% to 315.5 billion rupees, the lender's net interest margin shrank to 3.27% from 3.35% in the previous quarter. Banks typically pass on a decline in benchmark policy rates to the loan book quicker than to their deposit base. Net trading and mark to market gain for the quarter was at 23.9 billion rupees, compared to 2.9 billion rupees in the same quarter last year. Loans grew 9.9% in the quarter over a year ago, driven by a pick up in small and mid-sized business loans. The bank, which has been shoring up its deposit base after a merger with its parent HDFC two years ago, saw deposits grow 12% on-year in this quarter. Indian lenders have seen a gradual pickup in credit demand over the last few months after several quarters of slowdown. Analysts expect the demand recovery to be more roubust in the second half of the fiscal year, helped by recent tax cuts. The Mumbai-based lender's asset quality improved with gross non-performing asset ratio at 1.24% at the end of September, compared with 1.4% three months earlier. Funds kept aside for potential bad loans and other losses rose 29.6% over a year ago to 35 billion rupees, as the bank chose to make floating provisions used for any future increase in stressed assets. Over the last year, Indian banks have been tightening underwriting norms and earmarking more funds related to loan loss provisions amid stress in retail segments such as personal loans and credit cards. ($1 = 87.9740 Indian rupees) (Reporting by Ashwin Manikandan and Ira Dugal; Editing by Ronojoy Mazumdar)
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