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CS Professional · Banking and Insurance - Laws and Practice · Performing and Non Performing Assets

On 31 March, a bank's gross advances are ₹800 crore and its gross NPAs are ₹40 crore. Provisions held against NPAs are ₹24 crore. Which pair of ratios correctly gives the gross NPA ratio and the net NPA ratio, taking net NPA as gross NPA less provisions and net advances as gross advances less provisions?

The gross NPA ratio is 5.00% (40 divided by 800) and the net NPA ratio is about 2.06%. Net NPA is 40 less 24, or ₹16 crore, and it is divided by net advances of ₹776 crore, which is gross advances less provisions.

  1. A5.00% and 2.00%
  2. B5.00% and 2.06%Correct
  3. C5.00% and 3.00%
  4. D4.76% and 2.06%

Explanation

Gross NPA ratio = 40/800 = 5.00%. Net NPA = 40 - 24 = ₹16 crore. Net advances = 800 - 24 = ₹776 crore. Net NPA ratio = 16/776 = 2.06%. Dividing by gross advances gives 2.00%, which uses the wrong base. 3.00% subtracts the wrong figure from the ratio, and 4.76% divides by a base inflated by adding the NPA.

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