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MUMBAI - India's largest lender, State Bank of India, cut its annual loan growth expectations on Thursday as corporate lending remained subdued, while a return to pre-pandemic levels of retail growth drove third-quarter profit well past estimates.

The Mumbai-based bank expects credit growth to be 7% for the financial year ending March 31, Chairman Dinesh Khara said on a post-earnings call, compared to a prior estimate of 8%-9%.

Lower spending by the country's private sector has slowed corporate loan growth and it is unlikely to improve significantly in the last two months of this financial year, said Khara.

Income from the corporate banking operations fell nearly 19%. The lender, however, expects private sector borrowing to improve following the federal budget that promised higher spending in the infrastructure sector to boost economic activity.

Meanwhile, lending to individuals has picked up for most lenders as the consumer spending returns to normalcy after being hit by the virus outbreak.

SBI said it plans to grow its unsecured loan book for at least four more quarters even as other banks have raised concerns over their quality of lending in the retail segment.

SBI's asset quality has remained largely stable and the lender has revised its credit cost guidance to lower than 2% for the financial year.

"The bank has dealt with stress quite well in the context of the pandemic," said Kajal Gandhi, vice president at ICICI Securities.

Overall provisions, however, rose to 103.42 billion rupees from 72.53 billion rupees a year ago as it kept aside more funds to cover potential bad loans stemming from the impact of the pandemic.

But it was only a narrow rise from 101.18 billion rupees in the previous quarter.

SBI shares closed 5.7% higher, their best in more than one-and-a-half years, after the results and have risen 29% so far this year.

Net profit fell 7% to 51.96 billion rupees ($712.73 million) for the three months ended Dec. 31, but beat analysts' estimates of 45.1 billion rupees, according to Refinitiv IBES data.

($1 = 72.9025 Indian rupees)

(Reporting by Chris Thomas in Bengaluru and Nupur Anand in Mumbai; Editing by Shounak Dasgupta and Arun Koyyur)