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CS Professional · Banking and Insurance - Laws and Practice · Analysis of Financial Statements of Banks

Gomti Bank has Gross NPAs of Rs 600 crore, provisions held against them of Rs 250 crore and gross advances of Rs 12,000 crore. Net NPAs are computed as Gross NPAs less provisions. What are the Gross NPA ratio and the Net NPA ratio, using net advances as gross advances less these provisions?

The Gross NPA ratio is 5.00 percent, being 600 divided by 12,000. Net NPAs are 350 crore after deducting 250 crore of provisions, and net advances are 11,750 crore, so the Net NPA ratio is about 2.98 percent.

  1. AGross 5.00%, Net 2.98%Correct
  2. BGross 5.00%, Net 5.00%
  3. CGross 2.08%, Net 2.98%
  4. DGross 5.00%, Net 2.08%

Explanation

Gross NPA ratio = 600/12,000 = 5.00%. Net NPAs = 600 - 250 = 350. Net advances = 12,000 - 250 = 11,750. Net NPA ratio = 350/11,750 = 2.98%. Dividing net NPAs by gross advances gives 2.92%, which is the wrong base; 2.08% results from using provisions wrongly.

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