What it is
A loan is 'performing' when the borrower pays on time. Once a payment is more than three months late, NRB classifies the loan as non-performing: substandard (3 to 6 months late), doubtful (6 to 12 months) or loss (over a year).
Gross NPL ratio = those loans ÷ total loans. If a bank has lent Rs 100 arba and Rs 3 arba is more than three months overdue, gross NPL is 3%.
It is 'gross' because it is before subtracting the provisions already set aside. Net NPL takes those off.
A rising NPL means more borrowers are struggling, more provisions will be needed, and profit will be hit.
How it is calculated
Gross NPL (%) = (Substandard + Doubtful + Loss loans) ÷ Total gross loans and advances × 100.
Worked on Nabil Bank Limited, FY 2082/83 Q4
NABIL's gross NPL ratio was 4.20% at the end of FY 2082/83 Q4 on a loan book of about Rs 46,031.78 crore. Its provision cover was 119.73%.
What good looks like
Lower is better, and the trend matters more than the level. Compare with the bank's own figure a year ago and with the sector median. A bank whose NPL is rising faster than peers is taking losses others are not.
Watch out
- Restructured or rescheduled loans may not be counted as NPL even though the borrower struggled.
- Fast loan growth lowers the ratio mechanically because the denominator grows; the problem shows up later.
- Watch-list loans are not in NPL but are the pipeline into it.
- Written-off loans leave the ratio entirely; a bank can lower NPL by writing off.
In Nepal
NRB Unified Directive No. 2 classification: pass (up to 3 months overdue), watch list, substandard (3 to 6 months), doubtful (6 to 12 months), loss (over 12 months). The last three are non-performing. Minimum provisions: watch list 5%, substandard 25%, doubtful 50%, loss 100%. A regularised NPL moves to the watch list and can be upgraded to pass only after six months (NRB circular, FY 2081/82). Commentators often cite 5% as the level at which NRB scrutiny intensifies; this page does not treat that as a published rule because the PCA bylaws' NPL trigger could not be verified.
Questions
Any loan where a payment is more than three months overdue: NRB's substandard, doubtful and loss categories.
Compare it with peers and with the bank's own history. The same number is good in a stressed year and ordinary in a calm one.
Year-end audits and NRB inspections force banks to downgrade loans they had kept as pass or watch list.