BharatNotes What is Gross vs Net NPA?
A Non-Performing Asset (NPA) is a loan or advance on which principal or interest payment remains overdue for more than 90 days, as defined by the RBI's Master Circular on Prudential Norms (Income Recognition, Asset Classification and Provisioning — IRAC norms).
- Gross NPA (GNPA) is the total outstanding value of all such bad loans, before deducting provisions. It signals the magnitude of the asset-quality problem.
- Net NPA (NNPA) is what remains after subtracting the provisions (and interest in suspense) that a bank has set aside against those loans. It signals the bank's actual unprovided-for risk — the loss it would absorb if recoveries fail.
The core formula is Net NPA = Gross NPA − Provisions held.
Key features and formulae
| Metric | Formula | What it shows |
|---|---|---|
| Gross NPA Ratio | (Gross NPAs / Gross Advances) × 100 | Scale of stressed loans |
| Net NPA Ratio | (Net NPAs / Net Advances) × 100 | Unprovided residual risk |
| Provisioning Coverage Ratio (PCR) | (Provisions / Gross NPAs) × 100 | Cushion against bad loans |
A wide gap between the gross and net ratios indicates strong provisioning and prudent risk management; a narrow gap suggests under-provisioning and higher vulnerability.
Asset classification and provisioning
Once an account turns NPA, the RBI requires it to be classified and provided for:
| Category | Condition | Minimum provision (secured) |
|---|---|---|
| Substandard | NPA up to 12 months | 15% (25% if unsecured) |
| Doubtful | NPA beyond 12 months | 25% to 100% (rising with age) |
| Loss | Identified as uncollectible | 100% |
These provisions, deducted from the gross figure, are precisely what convert GNPA into NNPA.
Current status
Asset quality across Indian banks has improved to multi-decadal lows. As of 30 September 2025 (provisional), the gross NPA ratio of Scheduled Commercial Banks for domestic operations was 2.15% — Public Sector Banks at 2.50%, Private Sector Banks at 1.73% and Foreign Banks at 0.80% (PIB, citing RBI data). This is below the 2010-11 level.
Earlier benchmarks confirm the trend: GNPA was 2.8% with NNPA 0.6% in March 2024, easing to 2.3% (GNPA) and 0.5% (NNPA) by March 2025 (RBI Financial Stability Reports). The RBI's latest stress tests project the aggregate GNPA ratio of major banks could ease further to around 1.9% by March 2027 under the baseline scenario.
UPSC angle
For Prelims, remember the 90-day rule, the GNPA-minus-provisions logic of NNPA, and the PCR. For Mains GS3, use the falling GNPA/NNPA ratios to evaluate the success of the RBI's 2015 Asset Quality Review, the Insolvency and Bankruptcy Code (2016), and the government's "4R" strategy (Recognition, Resolution, Recapitalisation, Reform). Always date-stamp the figures — NPA data is revised every six months in the Financial Stability Report.
