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Why is the offering of “teaser loans” by commercial banks a cause of economic concern

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Why is the offering of “teaser loans” by commercial banks a cause of economic concern?
1. The teaser loans are considered to be an aspect of subprime lending and banks may be exposed to the risk of defaulters in future.
2. In India, the teaser loans are mostly given to inexperienced entrepreneurs to set up manufacturing or export units.

(a)

1 only

(b)

2 only

(c)

Both 1 and 2

(d)

Neither 1 nor 2

Answer:

(a)

CA

Explanation

Statement 1 is correct: Teaser loans can attract borrowers with low initial rates but lead to potential defaults later. Statement 2 is not correct: Teaser loans are generally given for home and automobile purchases, not primarily for setting up manufacturing or export units.