* Posts net loss of 561 mln rupees in Q4
* Sees gross bad loans ratio below 4.5 pct this fiscal yr
* Infrastructure remains key concern (Adds quotes, details, forecasts)
By Devidutta Tripathy
MUMBAI, May 28 (Reuters) - Bank of India reported its first quarterly loss in more than two decades on Thursday, weighed down by a larger than expected increase in bad debts, sending its shares down more than 8 percent.
But India's third-largest state-owned bank by assets forecast an improvement for the fiscal year ahead, blaming the rise in bad loans on increased pressure put on borrowers in an attempt to clean up its balance sheet.
"Overall, I do believe that the worst is over," Chairwoman V. R. Iyer told a news conference, although sectors such as infrastructure remain a key concern for the bank.
Bad debts have plagued India's banking sector for the past three years, particularly state-run lenders, a legacy of both slower growth and weak due diligence across the industry.
But banks have begun to show signs of improvement. India's largest, State Bank of India, last week posted better-than-expected quarterly bad debts and said it now expected an improvement, a long-awaited sign of easing pressure.
BOI's gross bad loans jumped to 5.39 percent of the total loan book from 4.07 percent in the third quarter and 3.15 percent in the same three months a year ago.
Total provisions rose nearly a half from a year ago to 22.6 billion rupees. About 45 percent of the additions to bad loans in the fourth quarter were from infrastructure sector, which accounts for about 17 percent of the bank's loan book.
The bank said it expected that ratio to drop below 4.5 percent for the fiscal year running to next March.
BOI's net loss for the quarter to the end of March 2015 came in at 561 million rupees ($8.8 million). That compares to a 5.58 billion rupee profit a year earlier and to an analyst forecast of 5.22 billion rupees, according to Thomson Reuters data.
R.A. Sankara Narayanan, an executive director at the bank, said it was their first quarterly loss since 1991.
Bank of India shares ended the day down 5.9 percent at 191.85 rupees.
"The cleaning up is almost getting over," said Chairwoman Iyer, who will retire at the end of this month after two and half years at the helm.
"I didn't want to leave any problem for my successor." (Additional reporting by Himank Sharma; Editing by Clara Ferreira Marques and Jane Merriman)