How The Entire Process Of Bank Statement Analysis Work?

Perfios
4 min readMay 10, 2021

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Bank Statement analyser tool in India | Perfios

Whenever a business incorporates, it hardly holds any idea about future challenges. One such challenge is the continued analysis of documents and records. These documents can be from any department and demand a greater degree of attention. However, this is a tedious task that takes a lot of time and effort. One of the most efficient & reliable solutions the technology has blessed us with is software. Bank statement analysis is one such process that acquires a critical amount of attention and time. But today, in a world full of technology and softwares, banking has been advancing with time.

What is a bank statement analysis?

Analysis of bank statements analyzes borrowers’ financial transactions, i.e., outflows or debits, and inflows or credits over time based on their bank statements. Everyone has a bank statement that includes all of their transaction history, a standard text. A bank statement is simply the most accurate record of one’s income and expenses and offers a good view of one’s financial wellbeing.

A bank statement analysis includes the business or client’s transaction history, including all revenue sources, EMIs, expenses, withdrawals, credit card payments, receipts, and interest received for a given period. Banks are into the business of lending and investing, as we know. For loans, they receive interest and pay interest on deposits. The disparity between these two is called their revenue or spread of net interest. Today, their primary source of income is lending.

Therefore, banks expend a lot of their time on deciding whether a borrower is worthy, i.e., whether the person or organization has the potential to repay the loan. This takes us to the question: How does a bank discriminate between worthy and not so worthy borrowers? Via rigorous and detailed procedures, they check credit ratings, sources of income, jobs, and most importantly, collateral and KYC data.

What does reviewing bank statements teach us?

A bank statement Analysis delves deep into bank statements and analyses the data from the words to provide useful insights into the recurring transactions, loans and defaults (if any), revenue and frequency of a borrower, and the ability to repay. In the first instance, it Sounds quick and straightforward.

But this is not. A significant section of the world’s population also lacks a structured credit history and has no fixed collateral assets. For decades, this segment has been deprived of credit, outnumbering those with access to formal banking networks to use loans. Unorganized money lenders who issue them loans at sky-high interest rates are vulnerable to falling prey to them.

Let’s list how the study of bank statement analysis will prove to be a viable option for everyone:

  • In individual borrowers, the review of bank statements helps check income and assess expenditures, i.e., offers a full image of their revenue and cost based on their bank account.
  • For companies, bank statement analysis provides the cash inflows from purchases made by consumers and cash outflows based on suppliers’ payments.
  • The status of customer checks can be deduced from a bank statement analysis regarding whether a cheque has been cleared or bounced.
  • It is a fast and reliable tool for customer payment reconciliation.
  • Analysis of the bank statement shows non-payment and default events or inadequate funds. This is critical for the evaluation of both individuals and corporations’ creditworthiness.

Bank statements are obtained or gathered by field agents from borrowers at bank branches and analyzed at the banks. Bank statement file formats undergo significant changes, and the systems can be automated with all of the changes. So you do not need to continuously hop around with files, to do the changes all over.

Fintech companies in this space are significant disruptors and have come up with cutting-edge technology products for bank statements analysis. Private Sector Banks work with them to address the issue of financial inclusion.

Such software can handle hundreds of different formats of statements, validate data to prevent fraud, and provide a 360-degree view of the financial wellbeing of a borrower.

Benefits of analysis of bank statements

More automation and less manual effort: A bank statement analysis makes the manual collection of bank statements redundant, making it useful for borrowers and lenders alike. When automation is adopted, the turnaround time for the processing of loan applications is significantly reduced.

Better risk assessment: It also allows lenders to determine borrowers’ other liabilities, including current liabilities and recurring payments, affecting their ability to repay the loan they are applying for.

Cost reduction: For a manual operation of hundreds and thousands of workers employed in the back offices of FIs or KPOs, cost increases are the single most significant factor. In reducing those costs, automation goes a long way.

Automated processing of bank statements has dramatically improved turnaround times (TAT), to the point that several hundred pages of ideas are immediately analyzed. Bank Statement Analysis offers a detailed view of a borrower’s full transaction history, processing pdf data distributed over hundreds of pages into a meaningful and consistent image of their creditworthiness.

Also readThe new buzzword in the world of analysis and interpretation.

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