* Q3 cash profit at A$2.4 bln, down 5% on a year earlier

* Home loan, personal loan arrears tick higher

(Writes through; changes to bank-supplied percentage change in 4th paragraph, adds shares and analyst reaction)

May 9 (Reuters) - Commonwealth Bank of Australia , the country's biggest lender, reported a fall in January-March profit as competition wiped out the benefit of a return to growing its mortgage book, and said inflation was putting more borrowers behind on repayments.

The result caps a bleak run of profit announcements for Australia's so-called Big Four banks which have been forgoing margins and even offering cash handouts to win and keep borrowers since the central bank began hiking interest rates in 2022.

CBA, which controls a quarter of Australia's A$2.2 trillion ($1.45 trillion) mortgage market, was first to quit what it said were unprofitable "cashbacks" last year, sparking a contraction in its biggest earning division. On Thursday it said it resumed growing home loans since December, albeit slower than the market, but that profit still fell due to competition.

Unaudited cash profit came in at A$2.4 billion, beating analysts' A$2.33 billion consensus estimate but down 5% from the same period a year earlier. The bank said its net interest margin - a closely watched metric of interest collected on loans minus interest paid to deposit holders, was "slightly lower" without specifying.

Mortgage arrears rose to 0.61% in the March quarter from 0.52% in the December quarter - low compared to historic levels - but the bank said it expected the number to keep rising in coming months "given continued pressure on real household disposable incomes".

"We recognise that all households are feeling the impact of higher inflation and higher rates," CEO Matt Comyn said in a statement.

Shares of CBA - Australia's second-largest listed company after BHP Group - were down 1.4% in morning trading, contributing to a 0.5% decline on the broader market , as analysts welcomed the return to mortgage book growth but questioned whether a one-quarter rally in the stock since October was justified.

The result reflected "stabilisation in retail banking ... although the valuation still remains very challenging from our perspective", Citi analysts said in a client note.

UBS analysts noted a "visible deterioration in asset quality metrics" and said "defending back book profitability remains a key imperative for management", using an industry term to describe a bank's existing loans rather than new loans.

($1 = 1.5216 Australian dollars) (Reporting by Byron Kaye; Additional reporting by Sameer Manekar and Rishav Chatterjee in Bengaluru; Editing by Sonali Paul and Christopher Cushing)