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NPA expands to non-performing assets (NPA). Reserve Bank of India defines NPA as any advance or loan that is overdue for more than 90 days. “An asset becomes non-performing when it ceases to generate income for the bank,” said RBI in a circular form 2007. To be more attuned to international practises, RBI implemented the 90 days overdue norm for identifying NPAs has been made applicable from the year ended March 31, 2004. Depending on how long the assets have been an NPA, there are different types of non-performing assets as well.

What is an asset for a bank?

Asset means anything that is owned. For banks, a loan is an asset because the interest we pay on these loans is one of the most significant sources of income for the bank. When customers, retail or corporates, are not able to pay the interest, the asset becomes ‘non-performing’ for the bank because it is not earning anything for the bank. Therefore RBI has defined NPAs as assets that stop generating income for them.

Categories of NPA

There are different types of non-performing assets depending on how long they remain in the NPA category.

a) Sub-Standard Assets

An asset is classified as a sub-standard asset if it remains as an NPA for a period less than or equal to 12 months. 

b) Doubtful Assets

An asset is classified as a doubtful asset if it remained as an NPA for more than 12 months. 

c) Loss Assets

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An asset is considered as a loss asset when it is “uncollectible” or has such little value that its continuance as a bankable asset is not suggested. However, there may be some recovery value left in it as the asset has not been written off wholly or in parts.

NPA Provisioning

Keeping aside the technical definition, provisioning means an amount that the banks set aside from their profits or income in a particular quarter for non-performing assets; such assets that may turn into losses in the future. It is a method by which banks provide for bad assets and to maintain a healthy book of accounts.

Provisioning is done according to which category the asset belongs to. The categories have been mentioned in the above section. Not only the type of asset, but provisioning also depends on the type of bank. Like, Tier-I banks and Tier-II banks have different provisioning norms. 

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 you 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 you 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.

Example of NPA

Let us have a look at State Bank of India’s quarterly results for two quarters as a non-performing assets example. NPA ratios are mentioned in standalone quarterly results. Banks are supposed to publish their financial results on the exchanges every quarter of a fiscal year.

State Bank of India: Standalone Quarterly Statement

 Jun ’20Mar ’20
(in Rs. Cr. )
Interest Earned
(a) Int. /Disc. on Adv/Bills44,101.1142,579.66
(b) Income on Investment18,705.4817,316.46
(c) Int. on balances With RBI1,794.42948.87
(d) Others1,899.371,836.41
Other Income7,957.4813,346.11
EXPENDITURE
Interest Expended39,858.8239,914.48
Employees Cost11,865.0612,038.67
Other Expenses6,212.638,340.58
Depreciation
Operating Profit before Provisions and contingencies16,521.3515,733.78
Provisions And Contingencies12,501.3013,495.08
Exceptional Items1,539.732,731.34
P/L Before Tax5,559.784,970.04
Tax1,370.441,389.23
P/L After Tax from Ordinary Activities4,189.343,580.81
Prior Year Adjustments
Extra Ordinary Items
Net Profit/(Loss) For the Period4,189.343,580.81
Equity Share Capital892.46892.46
Reserves Excluding Revaluation Reserves
Equity Dividend Rate (%)
ANALYTICAL RATIOS
a) % of Share by Govt.56.9256.92
b) Capital Adequacy Ratio – Basel -I
c) Capital Adequacy Ratio – Basel -II
EPS Before Extra Ordinary
Basic EPS4.694.01
Diluted EPS4.694.01
EPS After Extra Ordinary
Basic EPS4.694.01
Diluted EPS4.694.01
NPA Ratios :
i) Gross NPA129,660.69149,091.85
ii) Net NPA42,703.6351,871.30
i) % of Gross NPA5.446.15
ii) % of Net NPA1.862.23
Return on Assets %0.420.37
Public Share Holding
No Of Shares (Crores)
Share Holding (%)
Promoters and Promoter Group Shareholding
a) Pledged/Encumbered
– Number of shares (Crores)
– Per. of shares (as a % of the total sh. of prom. and promoter group)
– Per. of shares (as a % of the total Share Cap. of the company)
b) Non-encumbered
– Number of shares (Crores)
– Per. of shares (as a % of the total sh. of prom. and promoter group)
– Per. of shares (as a % of the total Share Cap. of the company)
Notes|202006|202003

To Sum Up

High NPAs may not be favourable for a bank. This is because they are assets that are not performing. High NPAs mean that banks have too many loans that have become non-functional or are not rendering any interest income to the bank. Banks can either keep the NPAs in their books in the hope that they may be able to recover it or make provisions for it. Or else, banks write off the loans entirely as bad debt. However, there are many other factors to assess a bank apart from NPA.

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