Gross NPA
Gross NPA (Non-Performing Asset) refers to the total value of all loans and advances in a bank’s portfolio that have been classified as non-performing, before deducting provisions set aside against those loans. A loan becomes an NPA when interest or principal repayment is overdue for more than 90 days.
What Is Gross NPA?
The RBI defines a loan as an NPA when:
– Interest or principal has not been paid for 90 days (or more) for term loans
– For cash credit: the account has been out of order (continuously overdrawn beyond limit) for 90 days
– For agricultural loans: for two crop seasons (short duration) or one crop season (long duration)
Gross NPA = Sum of all NPAs in the portfolio (without deducting provisions)
NPA Classification Under RBI
| Category | Classification Criteria |
|———|————————|
| Substandard | NPA for less than or equal to 12 months |
| Doubtful | Substandard for more than 12 months |
| Loss | Asset identified as loss by internal/external auditors |
Provisioning requirements increase with NPA age: substandard requires 15%, doubtful 25-100%, loss 100% provisioning.
Gross NPA Ratio
Gross NPA Ratio = Gross NPA / Total Advances x 100
India’s banking system Gross NPA ratio peaked at approximately 11.2% in FY18 and has since declined to approximately 4% in FY24 due to recoveries, write-offs, and the IBC resolution process.
Gross NPA vs Net NPA
Gross NPA includes all bad loans before provisions. Net NPA deducts provisions, showing the actual unrecovered amount.
Practical Example
Bank A has total advances of Rs 50,000 crore. Of these, Rs 3,000 crore are not being repaid regularly. Gross NPA = Rs 3,000 crore. Gross NPA ratio = 3,000 / 50,000 = 6%. The bank has provisioned Rs 2,000 crore against these NPAs. Net NPA = Rs 1,000 crore. Net NPA ratio = 2%.
Key Takeaways
– Gross NPA is the total value of non-performing loans; a loan becomes NPA after 90 days of non-payment
– Classified as substandard, doubtful, or loss based on how long the loan has been NPA
– Gross NPA ratio = Gross NPA / Total Advances; India’s banking system ratio improved from 11.2% to ~4% between FY18 and FY24
– Provisioning requirements increase progressively as NPAs age
– Rising Gross NPAs are a warning signal for banks; declining ratios reflect improving asset quality
