<div>HDFC Bank Ltd, India's second-biggest private sector lender by assets, reported a smaller-than-expected increase in first-quarter profit due to higher provisions for bad loans.</div><div> </div><div>Indian banks have been hobbled by a surge in bad loans in the past three years as slower economic expansion hurt the ability of companies to service debt.</div><div> </div><div>The bulk of the industry's $49 billion bad loans sit with the dominant state-run banks, but private-sector lenders like HDFC Bank are also expected to see an increase in sour assets as they expand their market share, at a time when government banks are pulling back.</div><div> </div><div>Mumbai-based HDFC Bank said net profit rose 20.7 percent to 26.96 billion rupees ($423 million) for its fiscal first quarter to June 30, from 22.33 billion rupees reported a year earlier. Analysts on average had expected a net profit of 27.39 billion rupees, according to data compiled by Thomson Reuters.</div><div> </div><div>Gross non-performing loans as a percentage of total loans rose to 0.95 percent from 0.93 percent in the March quarter, although they were lower than the 1.07 percent reported in the year-ago quarter. Provisions for bad loans rose 30 percent from a year earlier, to 5.58 billion rupees.</div><div> </div><div>Manish Ostwal, a banking analyst with Mumbai brokerage Nirmal Bang, said the rise in HDFC Bank's bad loans was "acceptable" given the current environment.</div><div> </div><div>He said he did not expect bad loans to rise much further in the coming quarters at HDFC Bank, which typically does not have a big exposure to project finance -- hit by sectors like infrastructure -- and is more focussed on retail customers.</div><div> </div><div>Net interest income for the quarter grew 23.5 percent to 63.89 billion rupees as loans grew an average of nearly 26 percent, HDFC Bank said. Non-interest revenue including fees and commissions grew a faster 33 percent.</div><div> </div><div>Shares in HDFC Bank, which is India's most-valuable lender with a market capitalisation of about $44 billion, were down 0.3 percent by 0656 GMT in a Mumbai market that was little changed. The stock has so far this year gained more than 16 percent, outperforming the Bank Nifty and the benchmark Nifty.</div><div> </div><div>(Reuters)</div>