Gross & Net NPA RatioGNPA / NNPA
Bad loans as a share of all loans — gross before provisions, net after.
Why you care
These are the headline asset-quality numbers in every results story. But the real read is the gap: a bank with high gross NPAs but tiny net NPAs has already absorbed the pain; one where they're close together is still carrying unacknowledged losses.
Run the numbers
A 5% gross NPA can hide very different realities: with heavy provisions net drops to ~2%; with thin ones it stays near ~4% (illustrative). Same scary gross headline, very different amount of loss still to come.
Where this goes
The wedge between gross and net is created by provisioning, and how big it is gets measured by the Provision Coverage Ratio. The gross figure itself is just the sum of everything down the asset-classification ladder.
Why you care
The Gross NPA ratio is bad loans as a share of total loans; the Net NPA ratio is the same thing after subtracting the provisions already set aside. The gap between them tells you how honestly the bank has faced its losses.
These are the headline asset-quality numbers in every results announcement and every news story about a bank in trouble. But the useful insight is the difference between gross and net. A bank with high gross NPAs but a tiny net NPA has already provided heavily and absorbed the pain; a bank where gross and net are close together is still carrying unacknowledged losses. Knowing to look at both — not just the scary gross number — is what separates a real read from a headline-panic read.
Run the numbers
A bank with a ₹2,000 crore loan book (illustrative):
- Gross NPAs: ₹100 cr → Gross NPA ratio = 100 / 2,000 = 5.0%
- Provisions held against them: ₹60 cr
- Net NPAs: ₹100 − ₹60 = ₹40 cr → Net NPA ratio = 40 / 1,960 ≈ 2.0%
So 5% of loans are bad, but the bank has already eaten ₹60 cr of the expected loss, leaving 2% net still exposed. A second bank could also report 5% gross — but with only ₹20 cr provided, its net NPA would be ~4%, meaning far more loss still to come. Same gross headline, very different reality.
Where this goes
The wedge between gross and net is created by provisioning, and how big that wedge is gets measured directly by the Provision Coverage Ratio. The gross figure itself is just the sum of everything that's travelled down the asset-classification ladder.
What causes what
Before this
- Asset Classification (Standard → Loss)causes Gross & Net NPA RatioLoans graded down the ladder sum into the gross NPA figure.
- Credit Growthcauses Gross & Net NPA RatioLoans rushed out in a boom seed tomorrow's bad loans — fast growth today, slippages in 2–3 years.
- Recovery & Write-offscauses Gross & Net NPA RatioWriting off a fully-provided loan removes it from the books — GNPA can fall with no real improvement.