BENGALURU, Feb 3 (Reuters) - State Bank of India , the country's largest lender, on Friday said its quarterly profit surged a better-than-expected 68.5% to a record high, boosted by better interest income and a drop in bad loan provisions.

Strong economic activity post the pandemic and recent festive-season spending have helped credit demand in India, feeding both retail and corporate loan growth at the bank.

"I am bullish in terms of (how the) economy looks," SBI Chairman Dinesh Kumar Khara told reporters on a post-earnings call, retaining his outlook of 14%-16% credit growth for the full year.

Credit growth at state-owned SBI stood at 17.6% for the reported quarter, with around 18% growth seen in retail and corporate loans each, while deposits grew 9.51%.

Khara said he didn't expect any challenge in keeping credit costs under control.

Net interest income - the difference between interest earned and paid - rose 24% to 380.69 billion rupees, while net interest margin rose to 3.69% from 3.40% a year ago.

SBI's net profit rose to 142.05 billion rupees ($1.74 billion) from 84.32 billion rupees a year earlier, beating analysts' estimates of 131.01 billion rupees, according to Refinitiv IBES data.

NO CONCERNS YET ON ADANI EXPOSURE

Chairman Khara also said any further financing to the embattled Adani Group, to which the bank has an exposure of 270 billion rupees, would be "evaluated on its own merit", adding that there were no concerns so far regarding its exposure.

Shares of state-run lenders surged 70% last year as analysts turned bullish, though concerns about exposure to Adani Group companies have slammed the sub-index in the past two weeks.

Indian banks have seen their bad loans clear up over the past few quarters as the pandemic abated and loan recoveries improved, boosting their bottom line.

For SBI, gross bad loans as a ratio of total loans, a measure of asset quality, eased to 3.14% from 3.52% a quarter earlier.

($1 = 81.8320 Indian rupees) (Reporting by Nishit Navin and Chris Thomas in Bengaluru; Editing by Nivedita Bhattacharjee)