Definition
Net NPA Ratio
The Net NPA ratio is gross non-performing assets minus provisions held against them, expressed as a percentage of net advances.
Net NPA strips out the provisions a bank has already set aside, showing the bad loans that are still unprovided and could hit future profits. A low net NPA with a high gross NPA implies the bank has provisioned aggressively, reflected in a high provision coverage ratio.
The RBI watches net NPA closely because it directly threatens capital. Well-capitalised Indian private banks often report net NPA below 1%, while weaker lenders carry higher uncovered stress. A net NPA near zero signals near-full provisioning of recognised bad loans.
Related terms
- Net Interest Margin (NIM)Net Interest Margin is the difference between the interest a bank earns on advances and investments and what it pays on deposits and borrowings, expressed as a percentage of average interest-earning assets.
- Gross NPA Ratio (GNPA)The Gross NPA ratio is the share of a bank's total advances that have turned into non-performing assets, before deducting provisions held against them.
- Provision Coverage Ratio (PCR)The Provision Coverage Ratio is the proportion of a bank's gross non-performing assets covered by provisions, showing how well it is buffered against loan losses.
- Credit CostCredit cost is the provisioning a bank or NBFC books for bad and doubtful loans during a period, usually expressed as a percentage of average advances.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.