Provisioning Coverage Ratio (PCR)Ī Provisioning Coverage Ratio or PCR is the percentage of funds that a bank sets aside for losses due to bad debts. If a bank has issued a total of Rs.100 crore as loans, a GNPA of Rs.5 crore, and NPA Provisioning of Rs.2 crore, then the NNPA will be Rs.3 crore and the NNPA percentage will be 3%. This is the Net NPA.Įxample: Like GNPA, NNPA can also be expressed as a percentage.

Therefore, the net impact of the non-performing assets can be understood by subtracting the NPA Provisioning amount from GNPA. NNPA – Net Non-Performing AssetsĪs explained above, banks set aside funds for uncertain loans issued by them. Remember, a high GNPA means the bank has a poor quality of assets. In other words, five percent of the loans issued by the bank are currently non-recoverable.

This can tell you the percentage of the total loans that are currently non-recoverable.Įxample: If a bank has issued a total of Rs.100 crore as loans and has a GNPA of Rs.5 crore, then the GNPA percentage will be 5%. GNPA can also be expressed as a percentage of the total loans issued by the bank. This is an absolute number and can tell you the amount of loans that the bank is not earning money on. Gross NPA is the total value of non-performing assets of the bank. Banks usually set aside provisions from their net profit.Įvery bank has different NPA provisioning since it depends on a lot of factors. To ensure that such defaults don’t derail the bank’s finances, it sets aside an amount every year for non-performing assets or NPAs. When a bank issues loans, it knows that some borrowers might default and not be able to repay the amount. A ‘non-performing asset’ (NPA) was defined as a credit facility in respect of which the interest and/ or installment of principal has remained ‘past due’ for a specified period of time.”ĭBOD No. “An asset, including a leased asset, becomes non-performing when it ceases to generate income for the bank. However, if the borrower starts defaulting and reaches a stage where repayment of the loan is not possible, then the asset is said to be non-performing. As long as the borrower pays the instalments, the asset is said to be performing. The interest paid by borrowers is the primary source of income for most banks. Therefore, the loans offered by banks are their assets. Definition of NPAįor a bank, an asset is anything that offers income. And how you can check the financial health of any bank using simple ratios. In this article, we will talk about the financial aspects that make a bank strong. This may reflect on the banks’ stock market performance as well. However, in recent years, there have been instances of scams and large-scale banking failures, creating doubts in our minds regarding the safety of our funds. Banks were considered to be the safest financial institutions in India.

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