Skip to content
Email: contactus@precisa.in
Phone number: +91 98450 76647
  • Solutions
    • DSA Service
    • Forensic Investigation
    • Bank Statement Analysis
    • GSTR Analysis
    • Credit Report Analysis
    • Account Aggregator Integration
    • Anti-Money Laundering (AML) Analysis
  • APIs
  • Clients
  • About
  • Blog
  • Pricing
  • Sign In
Try Now
Bank Statement Analysis

Why Bank Statement Analysis Is Important in Lending Risk Management

October 19, 2022 precisateam No comments yet

In the financial year 2020-2021, the value of non-performing assets (NPAs) reported by public sector banks in India stood at INR 6 Trillion, while private sector banks reported NPAs to the tune of INR 2 Trillion. The growth of NPAs, also called “bad assets”, is a growing concern for lending institutions. According to the Reserve Bank of India, an NPA is a credit asset, such as a loan, which is unlikely to be repaid. NPAs eat into the profitability and sustainability of lending businesses. This is where in-depth, efficient bank statement analysis can empower lending businesses to make accurate decisions when evaluating loan applications at scale.

In this blog, we delve into the various pillars of bank statement analysis and how lending institutions can use it to their advantage to reduce the growth of loan defaults.

Strengthening-Lending-Risk-Management

6 Pillars Of Efficient Bank Statement Analysis 

Access to superior bank statement analysis software can help lending institutions optimise the loan application evaluation process by predicting the potential risks of a loan turning into an NPA. Here are six indicators that raise red flags:

1. Low Value and Frequency of Bank Deposits

There are several ways to measure a loan applicant’s fiscal health. One pillar is the number of deposits being made into the bank account. This could be in the form of monthly salary deposits for income from a business or self-employment. The value and frequency of such bank deposits indicate the earning capacity of a loan applicant. High-value and frequent deposits reflect profitability and healthy revenue generation capabilities.

On the other hand, if the last bank deposit made by a loan applicant was several months ago and the account has seen no incoming deposits since then, this can be considered a red flag. Irregular or sparse deposits are also a cause for concern. The logic is that loan applicants with regular income are more capable of paying back their Equated Monthly Installments (EMIs) on time.

2. Loan Payment Defaults 

A loan applicant’s history with loan repayments reflects in their bank statements. One or two EMIs need not raise a cause for alarm. However, if the bank statement analysis detects multiple loan repayment defaults, it raises concerns about the loan applicant defaulting on future loan payments. However, there is also a possibility that a loan applicant has improved their creditworthiness since their last experience. A comprehensive bank statement analysis paints a holistic picture of a borrower’s current state of creditworthiness.  

3. Consistently Low Cash Balance

The state of a loan applicant’s bank balance paints a clear picture of their financial well-being. For instance, borrowers who maintain a positive cash balance are less of a risk when it comes to replaying a loan. It shows positive financial habits because the applicant has excess cash that can tide them through any crisis, such as unemployment or business losses.

On the other hand, borrowers with a consistently low cash balance may need to pay penalties for not maintaining the minimum balance, which reflects in bank statement analysis. However, a low cash balance is not necessarily an indicator of low income. It can also mean that the loan applicant spends more than their income.  Such a trend does not serve the borrower’s purpose when being considered for a retail loan. Ideally, the value of the cash balance must be higher than the potential loan instalments.

4. Detection of Bounced Cheques 

Bank statement analysis can detect cases of bounced cheques. While one or two bounced cheques, followed by payment of dues soon after it happens, is not a problem, habitual cheque bouncing is a major red flag. It is a sign of poor financial habits and reflects an inability to honour one’s debts.

5. High Value and Frequency of Overdrafts

Most current accounts and some savings accounts come with an overdraft facility. This feature enables account holders to withdraw money or cover a transaction even when the account is low on funds. A high value and frequency of overdrafts indicate poor financial management. It can indicate a lower probability of the borrower paying back their loans on time. Bank statement analysis software can detect cases of overdrafts and alert the lender of this.

6. Review of Withdrawal History

A borrower’s withdrawal history and habits indicate their financial situation. It can show the existing credit that the borrower is paying off monthly and any personal liabilities for which the borrower is responsible. For instance, monthly withdrawal rules of the same amount can indicate an existing loan payment that a borrower has not declared. However, when bank statement analysis reveals that the borrower can make consistent payments for existing debt, it can also work in their favour.

The Takeaway 

Today, various institutions offer loan products to a wide range of customers. These include banks, non-banking financial companies (NBFCs), and digital lending fintech platforms delivering home loans, business loans, personal loans, and other products to entrepreneurs, professionals, corporations, governments, and other customer profiles.

As the number of loan applications rises, it is prudent for lending institutions to strengthen their lending risk management function. The growth of digital lending is a key driver in this acceleration, and digital loans will continue to grow rapidly.

For lending businesses to stay competitive, they must expedite the loan application process while balancing it efficiently and accurately. Using bank statement analysis software can play a transformative role in helping businesses meet their targets and stay profitable.

Precisa’s automated bank statement analysis tool comes with transparent pricing and customized pricing models to meet the needs of diverse businesses. Piqued your interest? Book a free demo today for more information.

  • Bank Financial Statement Analysis
  • Bank Statement Analysis Tools
  • Digital Lending

Post navigation

Previous
Next

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Search

Categories

  • Bank Statement Analysis (135)
  • Credit Appraisal (36)
  • Digital Lending (122)
  • Fintech (82)
  • NBFC Software (4)
  • Understanding Precisa (22)

Recent posts

  • When GST return do not match bank statements.
    When GST Returns Don’t Match Bank Statements: A Critical Business Lending Risk
  • Financial Fraud: cash deposits on bank holidays
    Cash Deposits on Bank Holidays: An Often Missed Red Flag in Financial Fraud Detection
  • Multi-Account Financial Analysis
    Best Practices for Multi-Account Financial Analysis in Complex Investigations

Tags

Account Aggreagtor AI in Fintech API To Get Bank Transactions Automated Bank Statement Analysis BaaS Bank Bank Accounts Bank Financial Statement Analysis Bank Statement Analysis Bank Statement Analysis API Bank Statement Analysis Tools BNPL Case Study cash flow analysis Co-Lending Credit Appraisal Credit Appraisal Software Tools Credit Bureau Data Quality and Integrity Digital Lending Due Diligence Embedded Finance Financial Data Analysis Tools Financial Inclusion Financial Industry Financial Security Financial Startups Financial Statement Analysis Software Fintech Fintech Companies Fraud Investigation GSTR GSTR Analyser Lenders Loan Management System Loan Rates Money Laundering MSME NBFC Open Banking P2P Lending Precisa RBI Transaction Categorisation

Continue reading

Financial Fraud: cash deposits on bank holidays
Bank Statement Analysis

Cash Deposits on Bank Holidays: An Often Missed Red Flag in Financial Fraud Detection

October 17, 2025 admin No comments yet

Financial fraud detection is a complex and challenging task, whether you are a lender, forensic auditor, or compliance officer. Despite staying vigilant, fraudsters often find ways to circumvent systems and defraud the financial system. The Reserve Bank of India (RBI) reports a decrease in fraud cases, dropping to 23,953 in 2024-25 from 36,060 the previous […]

Multi-Account Financial Analysis
Bank Statement Analysis

Best Practices for Multi-Account Financial Analysis in Complex Investigations

October 13, 2025 admin No comments yet

21st-century financial fraud leaves, not just one, but numerous digital footprints across multiple banks, wallets, and payment platforms. Today, investigators face suspects who split transactions across 5 to 20 different accounts to obscure money trails. What once involved tracking cheques and cash deposits now requires analysing UPI transactions, NEFT transfers, and cryptocurrency movements all at […]

EMI recovery rates
NBFC Software

How Daily Balance Tracking Improves EMI Recovery Rates

October 4, 2025 admin No comments yet

For Direct͏ Selling Agents (DSAs) and Non-Banki͏n͏g Financia͏l C͏ompanie͏s (NBFCs) in India͏, tim͏ely EMI recover͏y re͏mains ͏a sig͏nif͏ic͏ant ͏challenge. DSAs often manage mu͏ltiple borrow͏e͏rs a͏cros͏s diver͏se ͏regio͏ns, maki͏ng͏ it diff͏icult͏ ͏to ͏monitor repayment behavio͏r clos͏ely. Mi͏ssed or delayed ͏EMI͏s͏ not o͏nly affect thei͏r com͏missions but also str͏ain cli͏e͏nt relationships, wh͏ile NBFCs face increased credit risk. […]

Mumbai

403, Mayuresh Chambers, 4th Floor, Sector 11, CBD Belapur, Navi Mumbai, Maharashtra 400614

https://g.co/kgs/buJcESj
Pune

Rachana Park, 3rd Floor,Atreya Society,
Off. Senapati Bapat Marg,Wadarvadi, Pune,
Maharashtra – 411016

Links
  • Cancellation Policy
  • Terms Of Use
  • Privacy Policy
Subscribe to our newsletter

Sign up for our weekly newsletter to get the latest news, updates & amazing offers delivered directly in your inbox.




    © All Rights Reserved • Precisa • MADE WITH ❤️ & ⚡ IN INDIA.