Hyderabad-based, public sector lender Andhra Bank plans to double its gold backed loan portfolio to Rs 1,500 crore, by extending the lending activity in North India and Mumbai zones.

This would enable the customers to avail loans backed by ornamental gold for a maximum tenure of two year, following which the gold assets of the customer will be rolled over. There is no upper limit to the loan offered and no charges on the prepayment. M Anjaneya Prasad, general manager, Andhra Bank, said, "These types of loans are beneficial to customers, who can unlock the value of the gold. And to us, too, because gold always appreciates in value."

Prasad added, "We have just started issuing loans against gold and plan to disburse Rs 100 crore of such loans in the current financial year in the Mumbai zone."

During FY08-09, the bank created six new zones at -Hyderabad, Mumbai, Hyderabad, Funds & Invest. (Mumbai), New Delhi Zone and DIT-Cyber Gateway in an effort to reduce the effective turnaround time. The Mumbai zone covers Goa, Maharashtra and Gujarat.

The bank plans to increase the share of the retail advances, by extending loans against gold as a security, a lending method presently popular in Tamil Nadu and Andhra Pradesh. RS Reddy, chairperson and managing director, said, "While the bank has a significant portfolio of agricultural loans extended against gold as collateral, there is huge scope to use our over 1,400-branches' network to tap the non-farm segment for gold loans."

As reasoned by the officials, the interest earnings from farm lending against gold are modest as in this case the lending rates for priority sector are RBI regulated. Against this, lendings against gold to non-farm retail segment are considered to have higher return rates and are associated with less risk of turning into Non-Performing Assets (NPAs).

The total retail loan book of the bank presently stands at Rs 7,800 crore, which constitutes 12 percent advances against gold, amount to Rs 900 crore. The bank aim to increase the share of retail advances by 35 per cent in FY09-10. Earlier this month, the bank revealed its aim of generating Rs 150-lakh crore business by September 2010.