Net non-performing assets

Bad loans after deducting the provisions already made against them, as a percentage of net advances.

A bank with ₹1,260 crore of gross bad loans that has provided ₹882 crore reports net bad loans of ₹378 crore, or 0.92% of net advances.

Net bad loans are what remains as a live threat to the capital, since the provided portion has already been charged to profit. Below 1% is comfortable for an Indian bank.

When the gap between gross and net is wide, provisioning has been conservative. A narrow one means the losses are still ahead.

This is also the figure that connects asset quality to capital. Uncovered bad loans are a live claim on the equity, so a bank with 0.92% net bad loans against a core equity ratio of 9% has a comfortable cushion, while one at 4% net against the same capital is a different institution entirely. Work out the ratio of net bad loans to net worth once, and you'll usually find the picture resolves.