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A credit analyst must find payment failures in an applicant's bank statement and judge how serious they are.
Look for a debit followed by a matching reversal credit and a return charge, or a cheque return entry. Note the reason in words, the date and whether it was re-presented and paid. Count returns by number and recency.
Six to twelve months of statements, the narration column, and the lender's policy on how many returns in what period are acceptable.
A count of inward returns by type and month, the reasons, whether each was later paid, and a note for the credit memo.
A bounce is a payment instruction the account could not honour, most often because there was not enough money. In a bank statement it usually shows as a debit, a matching return or reversal entry, and a return charge. Lenders count bounces by number and recency, because they show the account running short before any loan goes overdue.
What is the difference between an inward return and an outward return?
- Inward return: a payment drawn on this account came back unpaid. Examples: an EMI debit through NACH that failed, or a cheque the account holder issued that bounced. This is the one that matters most to a lender, because it shows the applicant could not pay.
- Outward return: a cheque or payment the account holder received and deposited came back unpaid from the payer’s bank. This shows a customer’s problem, though many outward returns can still point to weak customers.
How do cheque, NACH or ECS and UPI AutoPay failures look in a statement?
Narrations vary by bank. The table shows the typical pattern.
| Entry type | Typical narration pattern | What it means for a lender | Severity |
|---|---|---|---|
| Cheque issued, returned | ”Chq return” or “Inward chq ret” with the cheque number, plus a charge | Applicant’s cheque bounced | High if for insufficient funds |
| NACH or ECS debit, returned | ”ACH DR RTN”, “NACH return” or “ECS return” with lender name, plus a charge | EMI or other mandate failed | High |
| UPI AutoPay debit, failed | Often no entry; sometimes a debit and reversal | Mandate debit failed | Medium to high; check the lender or bureau |
| Cheque deposited, returned | ”Outward chq ret” or “Chq dep ret” with a reversal of the credit | Customer’s payment failed | Medium |
Bounce reasons are usually printed in words or as a short code. Read the words. Common reasons, in plain language:
- Insufficient funds in the account.
- Payment stopped by the account holder.
- Mandate cancelled or not found.
- Account closed or frozen.
- Account details do not match the mandate.
- Signature or drawer details differ, for cheques.
For the full list of NACH return reasons, see NACH return reasons in India.
Worked example: one returned EMI
An applicant’s statement for March shows:
| Date | Narration (simplified) | Debit | Credit | Balance |
|---|---|---|---|---|
| 4 March | Opening | ₹9,800 | ||
| 5 March | NACH debit, NBFC loan EMI | ₹14,200 | (attempted) | |
| 5 March | NACH return, insufficient funds | ₹14,200 | ₹9,800 | |
| 6 March | Return charge plus GST | ₹590 | ₹9,210 | |
| 10 March | UPI credit from customer | ₹22,000 | ₹31,210 | |
| 12 March | NACH debit, NBFC loan EMI (re-presented) | ₹14,200 | ₹17,010 |
Note that many banks do not print the failed debit at all, only the return and the charge. Either way, the facts are the same: on 5 March the account held ₹9,800 against a ₹14,200 EMI, ₹4,400 short. The applicant paid ₹590 in charges, and the EMI cleared seven days late on 12 March. Check: ₹9,210 + ₹22,000 = ₹31,210; ₹31,210 less ₹14,200 = ₹17,010.
That instalment was 7 days past due, inside SMA-0. One such event in 12 months is often read as a timing slip. Three in six months is a pattern.
Why do three returns in six months outweigh a healthy average balance?
An average balance can be lifted by a few large credits. Returns show what happened on the day money was actually needed. Repeated returns for insufficient funds mean the applicant’s cash arrives after their commitments are due, or that they are juggling more debts than the account can carry. Many lenders set a policy limit on returns in the last three, six or twelve months.
What to read next
Bounces are one of several stress signals, so read next: financial distress signals in bank statements. For the full list of return reasons, see NACH return reasons in India, and for what happens after a missed EMI, what are DPD, SMA and NPA.
TransactIQ reads applicant bank statements and flags inward returns among its 40+ engineered credit signals. See the bank statement analyzer.