MUMBAI, Nov 4 (Reuters) - State Bank of India, the country's largest lender, reported an 8% increase in net profit for the July-September quarter on Saturday, helped by strong income from consumer loans as retail spending continues to grow.

The bank's net profit rose to 143.30 billion rupees ($1.72 billion) in its fiscal second quarter, from 132.65 billion rupees a year ago.

That was higher than analysts' estimate of 141.83 billion rupees, according to LSEG data.

Net interest income - the difference between a bank's interest earned and paid - rose 12.3% year-on-year to 395 billion rupees.

However, net interest margin - a key gauge of lenders' profitability - narrowed to 3.43% from 3.55% a year ago, and compared with 3.47% in the prior quarter.

SBI's loans grew by 12.4% year-on-year, while deposits grew 11.9%.

Indian banks have consistently reported double-digit loan growth over the past few months due to rising demand for credit, aided by increased consumer spending. A strong growth in the economy has spurred the demand for consumer loans.

The ongoing festive season is expected to further boost customer spending, helping sustain the demand for retail loans.

Looking at the trends from the festive season, SBI's retail loan pipeline continues to be "quite robust", SBI Chairman Dinesh Kumar Khara told reporters at a post-earnings press conference in Mumbai.

SBI's corporate loan pipeline currently stands at 4.77 trillion rupees, of which 1.5 trillion rupees is awaiting disbursement, Khara said.

The lender expects an overall credit growth of 13-14% for this financial year and aims to maintain net interest margins in the 3.50-3.60% range for this fiscal year.

Its gross non-performing assets (NPA) ratio - a key gauge of asset quality - fell to 2.55% as of end-September, compared with 2.76% at the end of June.

SBI is not concerned about rising delinquencies in its unsecured loan book and is well-capitalised to support business growth needs, Khara said.

($1 = 83.1400 Indian rupees) (Reporting by Siddhi Nayak; editing by Clelia Oziel)