Gross and net NPA

Also called: GNPA, NNPA · Topic: Banking Regulation, NPAs and Financial Stability · NCERT: Beyond NCERT

Meaning

Gross NPA (GNPA) is the total amount of all loans that have turned into non-performing assets (NPAs, meaning loans where interest or a principal instalment stays overdue for more than 90 days [1]). Net NPA (NNPA) is the part of these bad loans that the bank has not yet covered with provisions (money set aside from profits to absorb losses).

• Formulas:
• Net NPA = Gross NPA − provisions held

• GNPA ratio = Gross NPA ÷ gross advances (total loans) × 100

• Why it matters: GNPA shows how much of a bank's lending has gone bad. NNPA shows how much of that loss the bank still has to absorb. Together they are the main health check of a bank.

Explanation

How the two measures work

• Gross NPA counts every bad loan in full. It does not matter how much the bank has already set aside.
• Net NPA subtracts the provisions. What is left is the part of bad loans that is still "naked", or uncovered.
• The link between them is provisioning.
• Bank sets aside more provisions → NNPA falls.
• GNPA stays the same, because the loans are still bad.

• So a bank can cut its NNPA without recovering a single rupee. It only has to provide more.

• Provisioning Coverage Ratio (PCR) = provisions ÷ Gross NPA × 100. It shows what share of bad loans is already covered. RBI earlier used a 70% benchmark.

• Worked example:
• Gross advances = Rs 2,000 crore (illustration). GNPA = Rs 100 crore. So the GNPA ratio = 5%.
• Provisions held = Rs 75 crore.
• NNPA = 100 − 75 = Rs 25 crore.
• PCR = 75 ÷ 100 × 100 = 75%.

What goes into GNPA: the NPA classes

• A loan enters GNPA only after it crosses the NPA line. Before that, it is a Special Mention Account (SMA), an early-warning stage that is not counted as NPA [2].
• Once inside GNPA, the loan moves down a ladder, and each step needs a bigger provision:

Class	Rule	Provision (current)
Sub-standard	NPA for up to 12 months [1]	15% (unsecured 25%)
Doubtful	sub-standard for 12 months [1]	Secured part: D1 25% · D2 40% · D3 100%. Unsecured part: 100%
Loss	uncollectible, but not yet written off [1]	100% [2]

• Why this matters for NNPA: as a loan ages from sub-standard to doubtful to loss, the provision against it rises. So an old bad loan adds little to NNPA, but it stays in GNPA until it is recovered or written off.

What makes GNPA and NNPA rise or fall

GNPA rises when:

• More loans cross the 90-day overdue line (fresh slippage).
• Rules get stricter. For example, RBI's Asset Quality Review (AQR), 2015 forced banks to show hidden bad loans [4].

GNPA falls when:

• Borrowers repay, or the bank recovers money (for example through the IBC, 2016).
• Loans are upgraded. Since November 2021, an NPA returns to standard only when all arrears of interest and principal are cleared.
• Loans are written off (removed from the books). This lowers GNPA, but the stress is still real.

NNPA falls when:

• GNPA falls, or
• Provisions rise, even if GNPA does not change.

The NCERT link: why NNPA hurts capital

• NCERT Class 12 says Net Worth = Assets − Liabilities.
• The chain:
• A loan goes bad and is provided for → the bank's assets fall.
• Deposits (liabilities) do not fall, because the bank still owes depositors in full.

• So the loss comes straight out of net worth (the owners' capital).

• A high GNPA with a low PCR means large future losses are still waiting to hit capital. This leads to recapitalisation (the government or other owners put in fresh capital).

In India

• Rulemaker: the RBI, through its IRAC norms (Income Recognition and Asset Classification: rules on when interest counts as income, how loans are labelled, and how much to provide) [1][2].
• The NPA line:
• Interest or principal overdue for more than 90 days [1]. The limit was 180 days before 2004.
• For an overdraft or cash-credit account: "out of order" for more than 90 days [1].

• Farm loans follow crop seasons: 2 seasons for short-duration crops, 1 season for long-duration crops [1].

• Income rule: on an NPA, the bank cannot book unpaid interest as income. It counts that income only when cash actually comes in [2].

• Daily tagging (November 2021): NPA status is checked every day, not only at quarter-end.
• CRILC (Central Repository of Information on Large Credits, RBI's database of big loans) gathers data on borrowers with exposure of Rs 5 crore and above, so stress becomes visible before loans enter GNPA.
• The GNPA story:
• AQR 2015 → hidden bad loans shown on the books [4].
• 4R strategy by the Government: Recognise, Resolve, Recapitalise, Reform [4].
• SCB GNPA peaked at about 11.2% (March 2018).
• It fell to 2.31% (end-March 2025), the lowest in 20 years [4].
• It reached 2.15% (end-September 2025, provisional), a historic low [3].

• By bank group (September 2025): PSBs 2.50%, private banks 1.73%, foreign banks 0.80%.

• PCR trend (the NNPA side):

• All SCBs: 48.3% (March 2018) → 52.4% (September 2018) → 60.6% (March 2019) [5].

• PSBs: from 46.0% to 89.9% (December 2022) [6]. A higher PCR means a much smaller NNPA compared with GNPA.

• What comes next: RBI plans to move from the incurred-loss model to an Expected Credit Loss (ECL) model. Under ECL, banks provide for likely losses from the day a loan is made. RBI released a discussion paper on 16 January 2023 [7] and draft directions on 1 October 2025 [8]. This will change the provisions side of the NNPA formula.

Don't confuse with

• Stressed assets: this equals Gross NPA + restructured standard advances + written-off loans. It is wider than GNPA. Restructuring and write-offs remove loans from GNPA, but the stress is still there.
• Provisioning Coverage Ratio (PCR): this is a percentage (provisions ÷ GNPA). NNPA is an amount (GNPA − provisions). When provisions rise, PCR goes up and NNPA goes down.
• Loss asset vs written-off loan: a loss asset is still on the books and still part of GNPA [1]. A written-off loan has been removed from the books, so it is no longer in GNPA.
• SMA (Special Mention Account): loans 1-90 days overdue (SMA-0, SMA-1, SMA-2) are not NPAs and are not counted in GNPA [2].

Prelims Hooks

• Net NPA = Gross NPA − provisions. PCR = provisions ÷ Gross NPA × 100. Trap: more provisions → NNPA falls, PCR rises, and GNPA does not change.
• NPA = interest or principal overdue for more than 90 days [1]. The limit was 180 days before 2004.
• GNPA ratio = GNPA ÷ gross advances. SCB GNPA was 2.15% (September 2025), a historic low [3]. The peak was about 11.2% (March 2018).
• A loss asset is still counted in GNPA because it is not yet written off [1]. A write-off lowers GNPA without any recovery.
• SMA-2 (61-90 days) is still not an NPA, so it is outside GNPA [2].
• November 2021 rule: an NPA leaves GNPA through upgrade only after all arrears are cleared. Paying only the interest is not enough.

Mains Points

• GNPA and NNPA tell different stories.
• A falling NNPA can come from heavy provisioning, not real recovery.
• A falling GNPA can come from write-offs or restructuring.

• So a full picture needs GNPA, NNPA, PCR and stressed assets together. This is useful for GS-III answers on the twin balance-sheet problem (both companies and banks under debt stress at the same time).

• Recognition comes before resolution.

• Soft rules (180 days, interest-only upgrades) let banks hide bad loans through evergreening (giving fresh money so a bad loan looks healthy).
• The AQR (2015) first pushed GNPA up. Then the 4R strategy, the IBC (2016) and recapitalisation brought it down from about 11.2% (2018) to 2.15% (2025) [3][4].

• Lesson: honest GNPA data is the starting point of any clean-up.

• The provisioning trade-off.

• A high PCR (low NNPA) protects depositors and financial stability.
• But provisions come out of profit and capital. Under the incurred-loss model they arrive late and in big jumps, just when credit is most needed.
• The move to ECL with a prudential floor and a glide-path [8] aims to spread this cost over the life of the loan.

Related concepts

• Standard asset
• Special Mention Account
• Non-Performing Asset
• Sub-standard asset
• Doubtful asset
• Loss asset
• Loan loss provisioning
• Provisioning Coverage Ratio
• Stressed assets
• Expected Credit Loss provisioning

Read more

• Recognising bad loans: SMA, NPA classification and provisioning (IRAC norms)