MUMBAI, April 29(Reuters) - India's Kotak Mahindra Bank on Saturday reported a better-than-expected 26% increase in net profit for the January-March quarter, helped by higher net interest income and strong loan growth.

The private lender's standalone net profit, excluding subsidiaries, rose to 34.96 billion rupees ($427.8 million) in the fourth quarter of the fiscal year from 27.67 billion rupees in the same period last year.

The result beat analysts' forecast of 29.13 billion rupees, according to Refinitiv data.

Net interest income - the difference between interest earned and interest expended - increased 35% to 61.03 billion rupees from 45.21 billion rupees a year ago. Net interest margin grew to 5.75% for the reporting quarter from 4.78% last year.

The bank's loans increased by nearly 18% year-on-year, while deposits rose by 16.4%, largely led by term deposits.

But KVS Manian, president for corporate, institutional and investment banking, told reporters that demand for corporate credit was slow and corporate loans faced pricing pressure.

Indian banks have continued to report double-digit credit growth in recent months despite interest rate hikes worth 250 basis points by the Reserve Bank of India (RBI) since last May, according to RBI data.

Lenders have shored up their deposit base amid tightened liquidity conditions. However, deposit growth has trailed credit growth for most banks.

Thanks to strong credit growth, large private banks such as HDFC Bank and ICICI Bank reported a double-digit profit growth for the Jan-March quarter.

Kotak Mahindra reported improved asset quality for the quarter. The ratio of gross non-performing assets (NPA) was at 1.78% at the end of March, down from 1.90% at the end of December, while the net NPA ratio was 0.37%, compared with 0.43%.

The bank's board also recommended a dividend of 1.50 rupees per share.

Kotak Mahindra Bank is one of India's leading private sector lenders. As of March 31, the bank has a national footprint of 1,780 branches.

Last week, the bank's shareholders appointed Uday Kotak as a non-executive, non-independent director. Kotak’s term as managing director and chief executive officer ends in December.

The appointment is in accordance with the law and in the best interest of stakeholders, chief financial officer Jaimin Bhatt said.

($1 = 81.7200 Indian rupees) (Reporting by Siddhi Nayak; Editing by William Mallard and Clelia Oziel)