19 Nov, 2025
4 mins read
Non-performing assets are one of the most important indicators of a bank’s financial health. They show how efficiently a bank manages its loans and how well it controls credit risk. Both Gross NPA and Net NPA help investors, regulators and depositors assess the stability of a bank. While they may sound similar, each serves a different purpose in evaluating asset quality. This blog explains their meaning, key differences, calculation methods and relevance in the Indian banking system.
Gross NPA (GNPA) refers to the total value of all loans that have stopped generating income for the bank. A loan is treated as a non-performing asset when the borrower fails to pay interest or the principal amount for 90 days. All such accounts together form the Gross NPA.
Gross NPA includes:
Substandard assets
Doubtful assets
Loss assets
GNPA gives a broad picture of the bank’s overall loan portfolio quality. A higher ratio reflects rising stress in the lending book and indicates that more borrowers are struggling to repay their dues.
Net NPA (NNPA) represents the portion of non-performing loans that remain after the bank deducts provisions. Provisions are funds set aside to cover expected losses from bad loans. Since banks cannot recover the entire defaulted amount, they create provisions according to regulatory rules.
|
Net NPA = Gross NPA − Provisions − Recoveries |
Net NPA is considered a more realistic measure because it shows the actual risk the bank carries after accounting for expected losses. If the bank maintains strong provisions, its NNPA will be lower even when GNPA appears high.
The key differences between GNPA and NNPA are summarised below.
|
Basis |
Gross NPA |
Net NPA |
|---|---|---|
|
Meaning |
Total value of all loans classified as non-performing |
NPAs after deducting provisions and recoveries |
|
Indicates |
Overall stress in the loan book |
Actual risk remaining with the bank |
|
Provision Adjustment |
Not deducted |
Deducted |
|
Ratio Impact |
Usually higher |
Usually lower |
|
Evaluation |
Helps assess total asset quality |
Helps assess true credit risk |
Gross NPA shows the full extent of unpaid loans, while Net NPA highlights how effectively the bank has covered those loans through provisions.
Understanding the calculations helps you interpret a bank’s financial statements more accurately.
Gross NPA Ratio = (Gross NPAs ÷ Total Advances) × 100
Example:
If a bank has total advances of ₹1,000 crore and Gross NPAs of ₹60 crore, then:
GNPA Ratio = (60 ÷ 1,000) × 100 = 6 percent
Net NPA Ratio = (Gross NPAs minus Provisions minus Recoveries) ÷ Total Advances × 100
Example:
Using the same bank, assume it has made provisions of ₹40 crore.
Net NPAs = 60 minus 40 = ₹20 crore
NNPA Ratio = (20 ÷ 1,000) × 100 = 2 percent
This shows that while the bank has ₹60 crore in total stressed loans, only ₹20 crore poses actual risk after provisions.
A rising GNPA indicates weakening credit quality.
A rising NNPA signals that the bank may not be provisioning adequately.
A fall in both ratios often reflects better recovery efforts, stronger underwriting or improved borrower performance.
Gross NPA and Net NPA are essential indicators for understanding a bank’s financial strength. While Gross NPA provides a complete picture of unpaid loans, Net NPA reveals the true burden after provisions. Investors and depositors should review both metrics together to judge how efficiently a bank manages credit risk. A bank with moderate GNPA and very low NNPA often demonstrates prudent lending and strong provisioning practices. Monitoring these numbers regularly helps in assessing the stability and long-term performance of Indian banks.
The main difference is that Gross NPA shows the total value of non-performing loans, while Net NPA accounts for provisions and reflects the actual risk the bank carries. GNPA gives a broad view of the loan book’s stress, whereas NNPA provides a more realistic measure after deducting expected losses.
Net NPA matters more because it reveals how much of the NPA burden remains after the bank sets aside provisions. A bank may have a high GNPA, but if it has made strong provisions, the NNPA will be low, showing that the risk of loss is well managed. Regulators and investors consider NNPA a better indicator of financial stability.
There is no single ideal level, but generally, lower ratios signal better asset quality. Many well-managed Indian banks maintain GNPA below 5 percent and NNPA below 2 percent. The appropriate level also depends on economic conditions and the bank’s business model.
A bank with high GNPA but very low NNPA has likely made strong provisions to cover potential losses. This is usually a positive sign, as it shows the bank has recognised the stress and taken steps to minimise risk. However, consistently high GNPA may still indicate structural issues in its lending practices, so both figures must be evaluated together.
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