UPDATE 1-India's Kotak Mahindra Bank quarterly profit beats estimates

(Adds industry context, operational metrics)

BENGALURU, Oct 22 (Reuters) - India’s Kotak Mahindra Bank Ltd reported a bigger-than-expected 51% jump in its second-quarter net profit on Tuesday, boosted by higher interest income and lower tax expenses.

Kotak’s stellar results come at a time when Indian banks, already saddled with nearly $150 billion in bad loans, are struggling to grow their lending activity as a slowdown in domestic consumption weighs on demand for credit.

Credit growth at Indian banks dropped to the lowest level in nearly two years, latest Reserve Bank of India data showed.

Kotak’s loan growth during the quarter slowed to 15%, versus a growth of 18% last quarter and 21% in the same period last year.

For the three months to Sept. 30, net profit surged 51.1% to 17.24 billion rupees ($243.07 million) - its highest in at least 17 years - versus 11.42 billion rupees last year, the Mumbai-based private-sector lender said in a filing here to the exchanges.

Thirteen analysts, on average, had expected a profit of 15.23 billion rupees, according to Refinitiv data.

Interest earned during the period rose 16.6% to 67.62 billion rupees, while tax expenses dropped 37.3% to 3.76 billion rupees.

Net interest margin, a key indicator of a bank’s profitability, rose to 4.61% from 4.19% last year.

Meanwhile, gross bad loans as a percentage of total loans, a measure of asset quality, ticked up to 2.32% by the end of September quarter against 2.19% in the previous quarter. This was 2.15% during the same period a year ago. ($1 = 70.9250 Indian rupees) (Reporting by Chris Thomas in Bengaluru; editing by Uttaresh.V)