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NPA Ratio Formula:
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The NPA (Non-Performing Assets) Ratio measures the percentage of non-performing loans in a bank's total loan portfolio. It indicates the asset quality and credit risk management effectiveness of financial institutions.
The calculator uses the NPA Ratio formula:
Where:
Example: If NPAs are ₹50 crore and Total Advances are ₹1,000 crore, the NPA Ratio is 5%.
Explanation: The ratio shows what percentage of the bank's loans have stopped generating income due to non-payment by borrowers.
Details: NPA Ratio is a critical indicator of a bank's financial health. Lower ratios indicate better asset quality and risk management, while higher ratios signal potential financial stress and credit risk.
Tips: Enter NPAs and Total Advances in the same currency units. Both values must be positive, and Total Advances must be greater than zero for accurate calculation.
Q1: What constitutes a Non-Performing Asset?
A: An asset becomes non-performing when it stops generating income for the bank, typically when principal or interest payments are overdue for 90 days or more.
Q2: What is considered a good NPA Ratio?
A: Generally, an NPA Ratio below 2-3% is considered healthy for banks. Ratios above 5-6% may indicate significant asset quality problems.
Q3: How often should NPA Ratio be calculated?
A: Banks typically calculate and report NPA Ratios quarterly as part of their financial reporting to regulators and stakeholders.
Q4: What factors affect NPA Ratio?
A: Economic conditions, lending policies, borrower creditworthiness, recovery mechanisms, and regulatory changes all impact NPA levels.
Q5: How can banks reduce their NPA Ratio?
A: Through better credit assessment, proactive monitoring, restructuring of stressed assets, and effective recovery procedures including legal action when necessary.