* Q2 net beats estimates, on treasury gains and fee income
* Others including ICICI, SBI to gain from trading income
* HDFC Bank sees faster loan growth in coming quarters (Adds details, quotes)
By Narayanan Somasundaram
MUMBAI, Oct 14 (Reuters) - HDFC Bank (HDBK.BO), India's No. 2 private sector lender, reported a forecast-beating 30 percent rise in quarterly net profit on rising fee income and trading gains and a top official said loan growth would improve.
Bad debts fell in the quarter, a pointer to strengthening corporate and consumer health as the Indian economy shows signs of revival, although loan growth remained at about half the rates of recent years.
Indian banks were mostly insulated from the direct impact of the credit crisis, but the global downturn hit Asia's third-largest economy harder than expected and the industry's rapid growth slowed.
"Concerns over asset quality and slowing credit growth that were a major overhang on bank stocks are now receding as the GDP growth outlook continues to improve," Angel Broking analyst Vaibhav Agrawal said.
HDFC Bank reported trading gains of 1.63 billion rupees ($35.4 million), up from a small loss a year earlier, and profits on favourable market moves are also expected to power earnings of other lenders during the quarter, analysts said.
HDFC Bank's net profit followed a 32 percent rise in quarterly profit for Axis Bank (AXBK.BO). [ID:nBMA006138]
Top lender State Bank of India (SBI.BO), is expected to show a jump in non-interest income -- made up of trading gains, forex profits and fees -- rose 30 percent in the quarter, analysts said.
No.2 ICICI Bank (ICBK.BO), which reports results on Oct 30.
At the end of September, 10-year bond yields were about 140 basis points lower than a year earlier, while the stock market .BSESN had risen by a almost one-third.
Business confidence is returning in India, helped strong industrial production and automobile sales numbers and listed companies have raised around $17 billion in equity so far this year, largely to cut debt levels.
The New York-listed bank (HDB.N) posted a net profit of 6.87 billion rupees ($149 million) in the September quarter, helped by a 31 percent rise in fee-based income of 6.92 billion rupees.
Ten analysts polled by Reuters expected a net profit of 6.6 billion rupees.
HDFC Bank's loan growth slowed to 14.8 percent in the first six months of 2009/10 from an average of more than 30 percent over the past four years as firms shelved expansion plans.
Its bad debts fell to 1.8 percent of gross loans at the end of September from 2.1 percent three months earlier, and other banks are also expected to gain from declining bad debts.
For the banking industry, loans grew an annual 12.6 percent in late September, a far cry from the robust 25 percent expansion averaged last year, central bank data showed.
Bankers and analysts says new loan approvals have picked up and disbursements would rise from the December quarter.
"The banking system as a whole should grow at the 17-18 percent level. We normally target to grow at a slightly faster rate in the system," Paresh Sukthankar, one of HDFC Bank's executive director told reporters in a conference call.
Shares in HDFC Bank ended up 0.1 percent, underperforming a1.2 percent rise in the main market.
The shares have risen 70.7 percent so far this year, lagging a 78.6 percent rise for the benchmark index and a 86.9 percent rise for the sector index .BSEBANK. ($1=46.1 rupees) (Editing by John Mair)