Banks are in the lending and borrowing business. They earn interest on the loans they make and must pay interest on the deposits they hold; therefore, lending is their main source of income. Banks devote a significant amount of resources to determining if a borrower is creditworthy. They carefully examine bank statements to determine a borrower’s creditworthiness.
What is the meaning of bank statement analysis?
The study of borrowers’ financial transactions is referred to as bank statement analysis. Borrower financial transactions are defined as outflows, debits, credits, and inflows over a period of time based on the borrowers’ bank statements. A bank statement is a record of a person’s financial transactions. It is a reliable record of a person’s earnings and expenses that gives a clear picture of their financial situation. It keeps track of a person’s transaction history throughout a specific time period.
The Analysis of Bank Statements
Analysis of bank statements examines and evaluates data from PDF statements in order to provide relevant information about a borrower’s regular transactions, income and frequency, repayment capacity, loans and defaults, and so on. In India, a considerable portion of the population lacks a formal credit history, and this group outnumbers those who have access to conventional financial institutions. As a result, analyzing bank records can assist in determining an individual’s recent transaction pattern, which includes all credit and debit transactions.
Individual borrowers can use bank statement analyser to verify their income and get details on their expenses. In contrast, businesses can use it to get cash flows from consumers (in-flow) and cash flows to vendors (Out-flow). Customers’ cheques can also be checked to see whether they have cleared or if they have bounced. The use of bank statements analysis can be used to determine the borrower’s non-payment and funds default. It aids in determining the borrower’s creditworthiness.
Bank Statement Analysis Has Its Own Set of Challenges
It is necessary to understand that bank statement content is not uniform or consistent among banks. They include non-standard abbreviations and narratives, and each bank has its format for generating these details. Conducting such analysis on bank statements is not easy, given that many banks in India have their own set of formats and layouts.
Bank statements are collected from borrowers in bank offices or by field workers and then analyzed. The file formats of bank statements are also an issue because they have changed. A bank statement analyser can deal with such issues by accurately assessing the data and so playing a significant part in decision-making.
Bank Statement Analysis Benefits
- Automated process
The online bank statement analysis technique is advantageous since it uses an automated process that reduces the time it takes to process loan applications, which benefits both lenders and borrowers.
- Increased risk assessment
It aids lenders in determining the borrowers’ liabilities, which may impact their ability to repay the loan.
- Cost savings
Automated analysis helps to cut costs that might otherwise be greater with a human procedure.
- Unbanked people’s access
It assists persons who do not have access to credit and assists in the facilitation of loans. It generates reliable financial reports for Micro, Small, and Medium Enterprises (MSMEs) that lack collateral and are subject to seasonal tragedies and other causes. When combined with a thorough and thorough study of bank statements, flow-based lending has the potential to transform rural credit, opening openings for loan and insurance underwriting.
- Checking for repayment defaults
It also plays a significant part in showing a borrower’s repayment history. As a result, the study can reveal any cases of non-payment or payment default.
The significance of a bank statement analyser in determining loan approval
Obtaining a bank loan is currently a time-consuming process that necessitates a thorough paperwork review. The verification process differs from one bank to the next. The process begins with the application, which can be completed online or in-person at any branch. All required documentation, including residence evidence, identity proof, and proof of income (bank statement or paystubs received from the organization), must be submitted to a properly completed application form.
Before approving every loan, the bank considers four key factors: safety, liquidity, spread, and profitability. Banks will then examine previous funds flow statements from the bank statement over a period of time to ensure that the consumer is financially sound and will be able to repay the loan on time.
Analyzing the bank statement is a significant stage in approving a loan for a consumer. The bank reviews the expenditures on the statement and determines whether the consumer has the funds to repay their loan debt.
Loan sanctioning is a time-consuming process that requires thorough document verification. Only after complete verification of address, employment, and other factors is a loan approved for personal, educational, home/house, or industrial purposes.
A Smart Solution for Bank Statement Analysis in the 21st Century
Today’s lending institutions require cutting-edge bank statement analyser to make analysis easier. Perfios is far ahead of today’s options for performing a critical study of the applicants’ creditworthiness.
It’s an online financial data analytics platform that allows you to extract insights from various statements and strategically deconstruct them in the fields of cash flow-based loans, wealth management, and insurance. It provides you with a real-time view of the borrower’s financial situation in a matter of seconds.
Conclusion
Lending money to someone is dangerous; thus, lenders must examine the borrower before approving the loan. The simplest way to determine a borrower’s creditworthiness is to review their bank statements. It gives you a thorough picture of the borrower’s payment history, transacting patterns, and so forth.
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