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Context

• The gross non-performing assets (GNPA) ratio, which declined to a seven-year low of 5 per cent in September 2022, is expected to further improve to 4.9 per cent by September 2023 - Reserve Bank of India (RBI).

BACKGROUND

 

About NPA

• NPA or Non Performing Assets are those kinds of loans or advances that are in default or in arrears.
• In simpler terms, if the customers do not repay principal amount and interest for a certain period of time, then such loans are considered as Non Performing Assets or NPA.
• In India, the timeline given for classifying the asset as NPA is 180 days.
• This is as against 45 to 90 days of international norms.

Types of NPAs

• NPAs are of 4 types:

1. Standard Assets:It is a kind of performing asset which creates continuous income and repayments as and when they become due. These assets carry a normal risk and are not NPA in the real sense of the word. Hence, no special provisions are required for standard assets.
2. Sub-Standard Assets:Loans and advances which are non-performing assets for a period of 12 months, fall under the category of Sub-Standard Assets.
3. Doubtful Assets:The Assets considered as non-performing for a period of more than 12 months are known as Doubtful Assets.
4. Loss Assets:All those assets which cannot be recovered by the lending institutions are known as Loss Assets.

GNPA and NNPA

Banks are required to make their NPAs numbers public and to the RBI as well from time to time. There are primarily two metrics that help us to understand the NPA situation of any bank. NPA numbers for a bank will be mentioned in the standalone financial statements of a bank.

NPA in Absolute Numbers

GNPA: GNPA stands for gross non-performing assets. GNPA is an absolute amount. It tells us the total value of gross non-performing assets for the bank in a particular quarter or financial year as the case may be.

NNPA: NNPA stands for net non-performing assets. NNPA subtracts the provisions made by the bank from the gross NPA. Therefore, net NPA gives us the exact value of non-performing assets after the bank has made specific provisions for it.

NPA Ratios

NPAs can also be expressed as a percentage of total advances. It gives us an idea of how much of the total advances is not recoverable. The calculation is pretty simple:

GNPA ratio is the ratio of the total GNPA of the total advances.

NNPA ratio uses net NPA to find out the ratio to the total advances.

 

Gross NPA (GNPA)	Net NPA (NNPA)
Gross NPA (GNPA) denotes the total of all the loan assets that haven’t been repaid by the borrowers within the ninety-day period.	Net NPA (NNPA) is the amount remaining after deducting doubtful and unpaid debts from the GNPA. It is the actual loss suffered by the bank.
(Substandard + Doubtful + Loss) assets	Net NPAs = Gross NPAs – Provisions
It does not qualify the organization’s actual loss.	It qualifies the organization’s actual loss.
The bank provides a time limit after which the principal and interest must be repaid. After this period expires, the asset becomes non-performing.	There is no such time limit in Net NPA.

 

https://indianexpress.com/article/business/economy/gnpa-ratio-falls-to-seven-year-low-of-5-in-sept-2022-rbi-8351446/