Vinu: Hi Manu, could you explain the difference between Gross Advance and Net Advance?

Manu: Sure, Vinu.

Gross Advance: Let's say a bank in India has sanctioned a home loan of ₹50 lakhs to Mr. Sharma. This ₹50 lakhs would be part of the bank's Gross Advance. It represents the total amount of loans extended by the bank.

Net Advance: Now, consider that the bank has set aside a provision of ₹5 lakhs for potential losses on Mr. Sharma's loan. This provision is deducted from the Gross Advance. So, the Net Advance for this loan would be ₹45 lakhs (₹50 lakhs - ₹5 lakhs).

Vinu: I see. So, Net Advance gives a more realistic picture of the bank's actual lending exposure.

Manu: Exactly. It provides a more accurate reflection of the bank's financial health by accounting for potential losses due to loan defaults.

Vinu: Now, what about Gross NPA and Net NPA?

Manu: 

Gross NPA: Let's say a farmer in Maharashtra has defaulted on a ₹2 lakh agricultural loan from a regional rural bank. This ₹2 lakh would be included in the bank's Gross NPA.

Net NPA: If the bank has already recovered ₹50,000 through the sale of the farmer's collateral (land), then the Net NPA for this loan would be ₹1.5 lakhs (₹2 lakhs - ₹50,000).

Vinu: So, Net NPA represents the actual loss incurred by the bank due to non-performing loans.

Manu: Yes, it reflects the true impact of bad debts on the bank's profitability and financial stability.

Vinu: Thanks, Manu. That was very helpful. I now understand the distinction between Gross and Net for both Advances and NPAs.

Manu: You're welcome, Vinu. I'm glad I could clarify that for you.