GNPA And NNPA (Syllabus: GS Paper 3 – Economy)

Context: According to the Reserve Bank of India's biannual Financial Stability Report, commercial banks' asset quality declined further as their gross non-performing asset ratio dropped to a 12-year low of 2.8% by March 2024 from 3.2% in September 2023. 

• The report also highlighted a decrease in the net NPA ratio from 0.9% to 0.6% over the same period.

Gross Non Performing Asset

• Definition: It represents the total amount of NPAs before any provisioning is made.
• It is a loan or advance for which the principal or interest payment remained overdue for a period of 90 days.
• Nature: It refers to the total amount of loans that are considered non-performing, meaning the debtors have defaulted on payments.
• Classification: Commercial banks categorize loans as non-performing assets if payments are overdue by ninety days or more.

Net Non Performing Asset

• Definition: It is a term that most commercial banks use to indicate less allowance for any uncertain or poor debts.
• Calculation: It represents the amount of non-performing loans after deducting the provision made for potential loan losses.
• Purpose: Commercial banks set aside provisions to cover potential losses from unpaid loans, reducing the impact on their financial health.