(Reuters) -Kotak Mahindra Bank will buy Standard Chartered Bank's personal loan business in India, the Indian lender said on Friday, leaving the U.K.-based company to focus on its wealth and investment banking business in Asia's third-largest economy.

StanChart's personal loan book had an outstanding of 41 billion rupees ($488 million) as of Sept. 30, Kotak Mahindra Bank said.

India's personal loan market has become intensely competitive amid strong consumer demand. Last November, the central bank asked lenders to set aside more capital for such loans on concerns that soaring demand could lead to higher risk.

This has led to a moderation in banks' outstanding personal loans, to about 17% on-year in August from 18.3% a year ago.

"India's unsecured lending market offers significant growth potential for Kotak, especially in the higher-end segment," said Ambuj Chandna, head-products, consumer bank at Kotak Mahindra Bank.

The proposed transaction consists of so-called standard loans, or those loans that are performing well and are not showing any signs of distress or default, as per the Reserve Bank of India (RBI) guidelines.

"Our decision to divest the personal loan book is in line with the bank's focus to accelerate growth in the wealth, affluent and SME (small and medium enterprises) segment," said Aditya Mandloi, Standard Chartered Bank's head of wealth and retail banking for India and South Asia.

Mandloi added that India continues to be a key market for StanChart's network and the lender will continue to invest and grow in the country.

The transaction is expected to be completed over the next three months, subject to regulatory and other approvals as well as other closing conditions, Kotak said. ($1 = 84.0290 Indian rupees)

(Reporting by Dimpal Gulwani and Siddhi Nayak; Editing by Savio D'Souza)