Oct. 31 (Bloomberg) -- State Bank of India, the nation’s largest lender, said second-quarter profit increased 10 percent, more than analysts’ estimated, as income from trading climbed.

Net income climbed to 24.9 billion rupees ($530 million), or 39.22 rupees a share, for the three months ended Sept. 30, from 22.6 billion rupees, or 35.61 rupees, a year earlier, the bank said in a statement to the Bombay Stock Exchange. That compared with the 23.3 billion rupee median estimate of five analysts surveyed by Bloomberg.

The Mumbai-based lender joined rival ICICI Bank Ltd. in posting improved results on increased income from trading in stocks, bonds and currencies as the Sensitive Index heads for its best year in six. The economy, which central bank Governor Duvvuri Subbarao said this week is showing “definitive” signs of recovery, is also bolstering demand for the lender’s loans.

“The State Bank result is good and the second half will show better profits before provisions,” Deven Choksey, chief executive officer of K.R. Choksey Shares & Securities, which manages about $118 million for wealthy individuals, said in a text message. “Credit growth will be in excess of 25 percent in the second half of the current fiscal.”

The most recent quarter’s results, reported on a standalone basis, include earnings of the lender’s State Bank of Saurashtra unit, which was merged with the parent in August 2008.

Share Performance

Shares of State Bank, which accounts for a fifth of India’s banking assets, fell 0.2 percent to 2,191.05 rupees yesterday. They have climbed 70 percent this year, surpassing the 65 percent rise in benchmark Sensitive Index.

Net interest income, or the difference between revenue from loans and interest paid on deposits, rose 2.8 percent to 56.1 billion rupees from 54.6 billion rupees a year earlier, the bank said. The lender increased provisions for bad debt to 9.97 billion rupees from 9.11 billion rupees.

Income from so-called treasury operations, including trading in bonds and currency, rose 39 percent during the quarter to 59.9 billion rupees.

State Bank is “well positioned” to benefit from credit growth, Chairman Om Prakash Bhatt told reporters in Mumbai today. The company’s net interest margin, or lending profitability, is likely to rise by as much as 15 basis points in the coming quarters, he said. A basis point is 0.01 percentage point.

The central bank this week kept benchmark policy rates unchanged, while maintaining the economic growth estimate for the year ending March 31 at 6 percent, “with an upward bias.”

“State Bank of India is a barometer of the Indian economy, and if the economy does well, so should State Bank, especially given its wide presence,” said Sandesh Kirkire, chief executive officer of Kotak Mahindra Asset Management Co., which manages 380 billion rupees in Mumbai. “All indicators of the economy point to a revival and SBI should benefit directly from it.”

To contact the reporters on this story: Sumit Sharma in Mumbai at sumitsharma@bloomberg.net.

Last Updated: October 31, 2009 08:20 EDT