REFILE-PREVIEW-Margin pressure to temper India Q2 bank profits

(Refiles to fix dateline)

By Kaustav Roy

MUMBAI, Oct 17 (Reuters) - Indian banks are seeing pressure on margins, and higher provisioning arising out of concerns on asset quality, moderating growth in July-September net profit, analysts said.

Banks have been offering high deposit rates to mop up funds for growth but slowing demand for loans has set up constraints to a commensurate raise in lending rates.

"The margins and the asset quality have been erratic and the cost of funds for many players have gone haywire," said an analyst with a local brokerage.

It was a double whammy for banks bitten by a slowdown in loan demand from the retail sector on one hand, and having to offer higher interest rates to lure deposits on the other.

Retail loans are expected to slow down as some of the large players have turned cautious owing to rising delinquency levels, Motilal Oswal said in a research note.

State-run Indian Bank (INBA.BO: Quote, Profile, Research) and Allahabad Bank (ALBK.BO: Quote, Profile, Research) are expected to announce their quarterly results on Oct. 18.

A Reuters poll of brokerages forecast a 10.27 percent rise in net profit for Indian Bank at 2.73 billion rupees, while Allahabad Bank's net profit is expected to fall 14.10 percent to 2.06 billion rupees.