BENGALURU, Jan 23 (Reuters) - State-owned IDBI Bank Ltd reported a record third-quarter profit on Monday, boosted by lower bad loan provisions and improved asset quality, sending shares up nearly 2% in afternoon trade.

IDBI Bank, which had some of the worst asset quality among lenders during India's bad loan crisis, has seen soured loans drop dramatically over the past few quarters on strong recoveries, and is now the focus of a government move to monetise a majority stake.

Gross bad loans as a measure of total loans -- a measure of asset quality -- improved to 13.82% in the quarter ended Dec.31, from 16.51% in the previous quarter. The lender said last quarter it expected the figure to come down to 12% by the end of this fiscal year.

Most Indian banks have managed to improve their asset quality helped by a clean up of balance sheet, write-offs and recoveries, and by ensuring that new slippages remained in check.

IDBI Bank's profit rose to 9.27 billion rupees ($113.84 million) for the reported quarter, from 5.78 billion rupees a year earlier, helped by a 75% drop in bad loan provisions and a 2% dip in overall provisions. ($1 = 81.4300 Indian rupees) (Reporting by Varun Vyas in Bengaluru; Editing by Nivedita Bhattacharjee)