State Bank of India, the country's top lender, beat estimates with a 12.4 percent rise in quarterly net profit but a rise in non-performing assets disappointed investors and its stock was down 5 percent after the results.

Worries about worsening asset quality in Asia's third-largest economy prompted Moody's Investors Service earlier on Wednesday to cut its outlook on the Indian banking sector to negative from stable. Net non-performing assets at SBI increased to 2.04 percent of total assets at the end of September from 1.7 percent a year earlier, spooking investors.

It is the increase in NPAs (non-performing assets) that hit the stocks today. It is a concern for the entire sector, said Arun Khurana, fund manager at UTI Banking Fund. However, going forward we expect pain from legacy NPAs to subside, he added.

SBI reported net profit of 28.1 billion rupees ($564 million) for its fiscal second quarter ended September 30, compared with 25.01 billion rupees a year earlier. A Reuters poll had projected net profit of 24.3 billion rupees on a standalone basis.

Net

Net Profit Up: SBI

Net interest income rose about 28 percent on the year to 104.2 billion rupees for the three months. Rivals ICICI Bank and HDFC Bank had earlier posted forecast-beating net profit increases of 22 percent and 32 percent respectively.