State Bank of India on Monday reported steady quarterly net profit, with better loan

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growth helping the country's top lender.

October-December net profit was 24.79 billion rupees ($538 million), compared with 24.78 billion a year earlier. A Reuters poll of analysts had forecast a 1.1 percent drop in net profit to 24.5 billion rupees.

A rise in yields on government bonds in the quarter, in contrast to a sharp fall in yields a year earlier, has hit banks' treasury income.

Indian banks were largely insulated from any direct impact of the credit crisis which rocked the global economy in 2008, but the subsequent slowdown hit the country harder than expected and led to a sharp slowdown in credit growth in the current fiscal year.

The revival in the economy and an improvement in customer confidence is expected to boost demand for loans, especially in the housing, retail and automobile sectors.

ICICI Bank, India's No.2 lender, last week posted a 13.4 percent fall in quarterly profit due to the drop in treasury income, but it said credit quality was improving as conservative lending policies and a strong rebound in activity slowed the rise in loan defaults.

Shares in State Bank, valued at $28.7 billion, are down 8 percent so far in 2010 and are trading near 4-month lows, underperforming a 3.3 percent drop in the banking sector index. ICICI shares are down 4.8 percent so far this year.