Leveraging ITR for NPA Reduction: Smarter Lending With Verified Data

Non-Performing Assets (NPAs) are the thorn in every lender’s side. They eat into profits, block fresh lending, and shake investor confidence. But here’s the good news—modern lenders are finding smarter ways to spot risky borrowers before they default. One of the most powerful among them? ITR Analysis. Let’s break down how using ITR for NPA Reduction works, why it matters, and how lenders can put it into practice.

By tapping into verified tax data, banks and NBFCs can see the borrower’s true financial picture—something credit scores and bank statements often fail to reveal.

Understanding NPAs in Simple Terms

Think of NPAs as loans that stop paying rent. After 90 days of missed payments, a loan is officially classified as a Non-Performing Asset. Banks then categorize them into:

• Standard Assets – Payments are fine
  
• Sub-Standard Assets – Delayed under 12 months
  
• Doubtful Assets – Delayed beyond 12 months
  
• Loss Assets – Almost impossible to recover
  

India has made progress in reducing NPAs, but the risk never disappears. With economic cycles, cash flow crunches, and rising fraud cases, lenders need sharper tools than ever.

Curious about how changing tax rules might affect compliance? Check out our blog on ITR Filing in 2025: A Complete Guide for Professionals.

Why Traditional Credit Checks Fall Short

Credit bureau scores and bank statements have been the go-to checks for decades. But they’re like looking at a borrower through a foggy window.

• Credit reports only show past behavior—not today’s financial stress.
  
• Updates arrive late, often missing early warning signs.
  
• Many income streams don’t even appear in credit bureau data.
  

Bank statements aren’t perfect either. PDFs can be edited, salary slips faked, and transaction histories manipulated. Even when genuine, they don’t reveal hidden liabilities or cross-company loans.

Result? Risky borrowers slip through, and NPAs pile up.

If you want to dive deeper into how tax insights beat conventional methods, read our blog on ITR vs. Bank Statement Analysis: Which Matters More for Loan Approval?.

Why ITR Data Changes the Game

Income Tax Returns are filed directly with the government, making them harder to manipulate. They capture:

• Verified Income Streams – salary, business profits, rental income, investments.
  
• Business Health – EBITDA, profit margins, tax payment regularity.
  
• Hidden Obligations – loans to relatives, contingent liabilities, pending litigations.
  

In short, ITR filings show what credit scores and bank statements miss. And when analyzed with ITR Analysis Software, they become predictive tools for lenders.

We’ve also explained How ITR Analysis Helps Assess Creditworthiness in Seconds — a must-read if you want the faster side of risk checks.

How Account Aggregators Enable Access

Thanks to RBI’s Account Aggregator framework, lenders can now fetch ITR data securely—only with borrower consent. The process is simple:

1. Lender requests ITR access.
   
2. Borrower approves consent digitally.
   
3. Aggregator fetches verified data from the tax portal.
   
4. Lender receives structured, encrypted information.
   

Consent can be revoked anytime, and every step is logged for compliance.

Key ITR Fields That Predict NPA Risk

Certain ITR data points act as early warning signs:

• Gross Total Income → used for debt-to-income checks.
  
• Tax Payment Dates → delays signal cash flow stress.
  
• EBITDA (business loans) → operating performance over time.
  
• Related-Party Transactions → potential hidden risks.
  
• Contingent Liabilities → lawsuits or guarantees that may hit later.
  

When borrowers’ declared income doesn’t align with EMIs, or when tax payments get delayed, lenders get advance alerts—long before a loan slips into NPA.

Building a 360° Credit Assessment

The smartest lenders don’t just rely on one data source. They combine:

• ITR data – income, tax compliance, liabilities
  
• GST returns – monthly business activity
  
• Bank statements – real-time cash flows
  

Cross-checking these exposes manipulation. For example, when GST sales don’t match ITR profits, or deposits in bank accounts don’t tally with declared income, it raises red flags.

For NBFCs looking at growth without risk, don’t miss our piece on How NBFCs Can Leverage ITR Insights for Smarter Lending.

Five Steps to Implement ITR for NPA Reduction

1. Data Collection & Standardization – Fetch ITRs through aggregators and clean the format.
   
2. Feature Creation – Convert raw numbers into risk metrics like income growth and payment consistency.
   
3. Model Development – Use machine learning to link ITR patterns with past defaults.
   
4. Risk Scoring – Rank borrowers into low, medium, and high risk.
   
5. Continuous Monitoring – Update models with new repayment data.
   

Still relying on spreadsheets? Learn why Manual ITR Checking Exposes Lenders to Risk and how automation changes the game.

Early Warning Systems in Action

With ITR monitoring, lenders can spot trouble before it escalates. Example triggers include:

• Income drop of 25%+ year-on-year.
  
• Tax payment delays beyond 90 days.
  
• Sudden jump in contingent liabilities.
  

Portfolio dashboards then highlight which borrower segments are most at risk, so collection teams can act early.

How Lenders Can Implement It

• Build In-House Systems – suited for large banks with deep tech teams.
  
• Use Third-Party APIs – like Pro Analyser’s ITR Analysis Software, ready for quick integration.
  
• Hybrid Approach – mix internal risk models with external data APIs for agility.
  

👉 Want to explore the plug-and-play option? Pro Analyser’s platform gives lenders instant access to structured ITR insights—without heavy IT investments.

The Payoff: Tangible Results

Lenders using ITR for NPA Reduction strategies typically see:

• Fewer Fresh NPAs – better upfront borrower screening.
  
• Faster Recovery – real-time alerts on struggling accounts.
  

Even a 2–3% improvement in default prediction can save crores in provisioning costs.

Getting Started With ITR Analytics

The best way forward is to run a pilot with a specific borrower segment. Measure the difference in default rates between loans approved with ITR insights versus those without.

With ITR Analysis tool like Pro Analyser, lenders can move from theory to practice quickly, cutting NPA risk and unlocking safer growth.

Conclusion

NPAs won’t vanish overnight, but lenders now have sharper weapons. By leveraging ITR for NPA Reduction, combining tax data with GST and bank flows, and using automation, the risk of bad loans drops significantly.

The future of lending belongs to those who trust verified data over assumptions. And with advanced ITR Analysis, the path to lower NPAs is already here.

Ready to cut down NPAs with smarter lending? Start your journey today — Sign up now and unlock the power of ITR insights.