There are two main parts to calculating Non-Performing Assets (NPAs): Gross NPA and Net NPA.
Gross NPA represents the total value of loans that haven’t been repaid by borrowers within a specific period, typically 90 days. It’s essentially the bank’s initial assessment of bad loans.
Net NPA is a more refined measure that reflects the bank’s actual loss after accounting for provisions. Provisions are essentially money set aside by the bank to cover potential losses from bad loans.
Here’s the formula for calculating Net NPA:
Net Non-Performing Assets = Gross NPAs – Provisions
Example:
Let’s say a bank has a total loan portfolio of ₹10 crore. Out of this, ₹2 crore are classified as non-performing loans (Gross NPA). If the bank has also set aside ₹50 lakh as provisions against these non-performing loans, then:
Net NPA = ₹2 crore – ₹50 lakh = ₹1.5 crore
This indicates that the bank has suffered an actual loss of ₹1.5 crore on its bad loans.
NPA Ratio:
You can also calculate the NPA ratio by dividing the non-performing assets by the total loans and multiplying by 100 to get a percentage. This helps compare NPA levels across banks
