* ICICI net profit 14.4 bln rupees vs 13.5 bln estimate
* Sees 20 pct credit growth in FY12, 18 pct this fiscal yr
* Net interest income rises 12 pct helped by credit growth
* Rising interest rates seen hurting credit growth for banks
* Shares end 1.7 percent higher; State Bank gains 3.7 pct
(Recasts, adds analyst comments)
By Sumeet Chatterjee
MUMBAI, Jan 24 (Reuters) - Rising interest rates in India are likely to dampen the outlook for banks' earnings growth in the near term, despite the country's top lenders beating estimates in third quarter results on surging credit demand and fee income.
ICICI Bank (ICBK.BO), India's second-largest lender, on Monday reported a record quarterly profit with a 30.5 percent rise, its strongest pace of growth in three quarters.
It also predicted credit growth of 20 percent in its fiscal year starting on April 1.
Rival State Bank of India (SBI.BO), the country's top lender, beat quarterly profit forecasts on Saturday and forecast 20 to 22 percent loan growth in fiscal 2012 on increasing fee income and loan offtake. [ID:nSGE70J0C4]
State Bank of India and ICICI also both see an improvement in asset quality in an economy growing at 8.5 percent.
But investors see margin pressures building.
"The sector is likely to see some margin pressure going forward as the impact of higher deposit rates in the last quarter start to have an impact," said Binay Chandgothia, chief investment officer at Principal Global Investors in Hong Kong.
Principal owns shares of the top three Indian banks including ICICI in its portfolio.
"The Reserve Bank of India will keep hiking rates in the short-term and that will slow down the nominal economic growth next year, impacting credit growth," Chandgothia said.
India's central bank is widely expected to raise key rates by 25 basis points on Tuesday to cool accelerating inflation. It would be the seventh increase in the past 12 months.
It had raised its main lending rate by 150 basis points in 2010. [ID:nSGE70I08T] <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Interactive graphic on comparative Starmine data:
Preview on Indian bank's quarterly earnings: [ID:nSGE70J03D] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
ICICI's shares ended up 1.7 percent at their highest close in nearly three weeks at 1,083.90 rupees, after having risen as much as 2.4 percent earlier, in a Mumbai market .BSESN that rose 0.7 percent.
ICICI Bank Chief Executive Chanda Kochhar said that the bank expected "at least" 20 percent credit growth in 2011/12 compared with an expected 18 percent growth in the fiscal year ending on March 31.
"There is a healthy growth in credit demand in the sense it is very well diversified," she said, adding the bank was seeing strong loan demand from corporates as well as retail borrowers. "The quality of profit is becoming healthier and healthier."
"ICICI has been a strong performer in the last few quarters and there is some upside to this stock," said Deven Choksey, chief executive of brokerage KR Choksey. "State Bank and ICICI will continue to see strong growth momentum in the long run."
Smaller rival HDFC Bank (HDBK.BO) is expected to report a 29 percent rise in its quarterly profit on Thursday.
NET INTEREST INCOME, ADVANCES UP
Net profit at ICICI Bank (IBN.N) rose to a record 14.4 billion rupees ($316 million) in the quarter that ended on Dec. 31 from 11 billion rupees a year earlier. Net interest income rose 12 percent to 23.1 billion rupees.
A Reuters poll of analysts had forecast net profit of 13.5 billion rupees on net interest income of 22.9 billion rupees.
ICICI Bank said its advances grew 15 percent to 2.07 trillion rupees ($45 billion) as of end-December.
Net interest margin, a key gauge of profitability, was at 2.6 percent in the quarter, little changed from a year ago.
The bank's net non-performing asset ratio dropped to 1.16 percent as of end-December from 2.19 percent a year ago, as improved business and consumer sentiment resulted in fewer loan defaults. ($1=45.6 rupees) (Additional reporting by Ploy Tenkate in BANGKOK; Editing by Jane Merriman)