MUMBAI - India's biggest lender State Bank of India (SBI) said on Friday its fourth-quarter profit rose 41% to a record 91.14 billion rupees ($1.18 billion) as it set aside less money to account for sour loans.

Investors cheered the lower bad loan provisioning by state-run SBI, widely seen by investors as a bellwether for the broader lending industry. Shares rose as much as 3.1% to 477 rupees after SBI reported results.

Most Indian lenders have reported healthy growth for the March quarter on back of an uptick in loan growth and improving asset quality, which has helped to keep provisions low.

SBI set aside 32.62 billion rupees as a provision for loan losses, over two-third lower than 99.14 billion rupees in the same period last year, the bank said in a filing to exchanges on Friday.

The bank saw its income from interest on loans grow 8.6% to 707.33 billion rupees during the quarter. Overall lending grew 11% during the quarter, driven by a strong 15.1% growth in retail loans.

($1 = 77.2920 Indian rupees)

(Reporting by Nupur Anand Writing by Sudarshan Varadhan Editing by Mark Potter and David Evans)