Difference Between Gross NPA and Net NPA

Difference Between Gross NPA and Net NPA

Nonperforming assets, or NPAs, are loans that have gone unpaid for an extended period of time after their payback period has expired. After a lengthy time, these assets are added to the bank’s balance sheet. To lenders, non-performing loans (NPAs) represent a significant financial burden.

When a loan is not repaid after 90 days, it is referred to as a non-performing asset (NPA). For most loans, a 90-day grace period is common, although terms and conditions may specify a different time frame. The lesser the bank’s interest-earning capacity and, therefore, its profitability, the greater its net non-performing assets (NPAs). Gross NPA or Net NPA are two terms used to describe the NPA based on the results of the computations involved.

Net NPA Vs. Gross NPA

A gross NPA is a nonperforming asset that comprises both the principal and interest amount, while a net NPA is a nonperforming asset acquired after deducting provisions from the original amount.

Interest and principal are added together to get the gross nonperforming asset (GNA). Deducting the provisions for a doubtful and bad debt from the original asset, the net nonperforming asset is computed. To put it another way, Net NPA is the difference between Gross NPA and the provisions made on such NPAs.

Definition of Gross NPA

The total of the principal owed and the interest due on that principle is known as the gross NPA. There is a chance that the landed amount will not be paid, as shown by this. In other words, Gross NPA is the total amount of all NPA assets that are now outstanding. (A1 + A2 + A3 + A4 +… + An)/Gross Advances is the method for determining Gross NPA

For each individual, A1 through An reflects the total amount of their loan.

An individual has 90 days to repay the loan, after which the asset becomes a Gross Non-Performing Asset (NPA). Gross NPA, on the other hand, represents the loss of both principal and interest to the lending institution.

The larger the ratio of the gross NPA, the weaker the company’s asset quality; the lower the ratio, the better. The Gross NPA ratio is defined as the percentage of the institution’s total NPA to its total loans.

Gross NPA is a result of a variety of factors, including insufficiently implemented government programmers, natural disasters, industrial disease, and more. Gross NPA damages the institution’s reputation and reduces the company’s equity value.

Definition of Net NPA

The difference between gross non-performing assets and provisions for bad and doubtful debt is what’s known as net NPA. Payments received from the individual who loaned the money are subtracted from the principal amount. (Gross NPA- provisions of unpaid debt)/ Gross Advances are the method for calculating Net NPA.

When a debt goes to Net NPA, there is no grace period; it instantly goes to Net NPA. The lending institution’s real loss is referred to as the net NPA. Credit institutions cover the outstanding loan, and as a result the amount actually paid is reduced from the original amount, resulting in the company’s real loss being calculated.

It is the ratio of the Net NPA to Net Advances. It assesses the institution’s general health and the quality of its loans.

Low provisions for overdue debts are the root cause of net NPA. The company’s liquidity and profitability suffer when Net NPA is large. It indicates that the firm is losing money.

Difference Between Gross NPA and Net NPA

  • Gross NPA is the total of the principal and interest that remains outstanding at the end of the repayment term, whereas Net NPA is the amount that may be deducted from gross NPA.
  • Gross non-performing assets (NPAs) have a grace period after which the loan must be repaid, however, Net NPAs do not.
  • It takes a while for an asset to become grossly NPA, but it immediately becomes net NPA after that time.
  • After 90 days, the asset turns into a gross NPA, but this is not the case with a net NPA.
  • Financial institutions are not really losing money when they have high levels of gross non-performing assets (NPA).
  • Financial institutions’ goodwill is harmed and their stock value is diminished by gross non-performing assets (NPA), while Net NPA has an adverse effect on the company’s liquidity and profitability.
  • Natural disasters, inadequate government policies, their implementations, and industrial disease all contribute to gross NPA, whereas minimal provisions for outstanding obligations contribute to net NPA.
  • Having a larger percentage of gross NPA indicates that the lending institution’s assets are in bad condition while having a lower ratio of net NPA indicates that the institution’s overall financial position is in poor shape.


It doesn’t matter whether the NPA is gross or net; either way, it’s terrible for business and forces it to take a hit. Large NPAs have the ability to tarnish the company’s reputation.

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