KINDS OF NPAS
1. Gross NPA
Gross NPAs are the sum total of all loan assets that are classified as NPAs as per the RBI guidelines as on Balance Sheet date. It reflects the quality of the loans made by banks.
It consists of all the non-standard assets such as sub-standard, doubtful, and loss assets. It can be calculated with the help of following ratio:Gross NPA ratio = Gross NPAs/Gross Advances
2. Net NPA
Net NPAs are those type of NPAs in which the bank deducts the provision regarding NPAs. Net NPA shows the actual burden of banks. Since in India, bank balance sheets contain a huge amount of NPAs and the process of recovery and write off of loans is very time consuming, the provisions the banks have to make against the NPAs according to the central bank guidelines, are quite significant. That is why the difference between gross and net NPA is quite high. It can be calculated by following.
Net NPAs= Gross NPAs - Provisions/Gross Advances - Provisions