BENGALURU - India's Axis Bank reported a 3.7% rise in third-quarter profit on Tuesday that came in marginally above estimates, helped by higher loan growth, while margins shrank.

The Mumbai-based private bank reported a standalone net profit of 60.71 billion rupees ($730.19 million) in the three months ended Dec. 31, compared to 58.53 billion rupees a year ago.

Analysts, on average, had expected a profit of 59.91 billion rupees, according to LSEG data.

The standalone numbers do not include the business of the bank's subsidiaries.

Axis Bank's net interest income - the difference between interest earned and paid out - increased 9.4% on-year to 125.32 billion rupees.

However, the net interest margin (NIM), a barometer of a bank's profitability, shrunk sharply to 4.01% from 4.26% a year ago and 4.11% in the prior quarter.

Most Indian banks have reported a drop in lending margins in the fiscal third quarter despite stronger loan growth, as the cost of deposits has risen amid tighter liquidity conditions in the banking system.

Last week, HDFC Bank and ICICI Bank - two of India's largest private lenders - reported weak margins for October-December.

($1 = 83.1430 Indian rupees)

(Reporting by Sethuraman NR in Bengaluru and Siddhi Nayak in Mumbai; Editing by Janane Venkatraman)