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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 sub-prime lending and banks may be exposed to the risk of defaulters in future. 2. In India, teaser loans are mostly given to inexperienced entrepreneurs to set up manufacturing or export units. Which of the statements given above is/are correct?

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 sub-prime lending and banks may be exposed to the risk of defaulters in future. 2. In India, teaser loans are mostly given to inexperienced entrepreneurs to set up manufacturing or export units. Which of the statements given above is/are correct? Correct Answer 1 only

The correct answer is 1 only.

Key Points

  • Teaser loans:
    • Teaser loans are loans that offer a lower rate of interest in the first few years after which the rates are increased.
    • SBI pioneered the teaser rate concept in home loans in November 2009.
    • The teaser loans are considered to be an aspect of sub-prime lending. Hence, statement 1 is correct.
      • Subprime lending is the practice of lending to borrowers with a low credit rating that may be exposed to the risk of defaulters in future.
    • It has nothing to do with the experience of the entrepreneurs as the teaser loans are given to entrepreneurs as well as home loans. Hence, statement 2 is incorrect.

Related Questions

Directions : In each of the following questions a statement is given, followed by three conclusions. Give answer :

Statement : The Reserve Bank of India has directed the banks to refuse fresh loans to major defaulters.

Assumptions :
I. The banks may still give loans to the defaulters.
II. The defaulters may repay the earlier loan to get fresh loan.
III. The banks may recover the bad loans through such harsh measures.
Which of the following statements are true in context of scheduled banks?
1. All banks which are included in the Second Schedule to the Reserve Bank of India Act, 1934 are Scheduled Banks.
2. These banks comprise Scheduled Commercial Banks and Scheduled Co-operative Banks.
3. Scheduled Commercial Banks in India are categorized into five different groups - SBI, Nationalised Banks, Regional Rural Banks, Foreign Banks and Other Indian Scheduled Commercial Banks in the private sector.
4. Scheduled Co-operative Banks consist of Scheduled State Co-operative Banks and Scheduled Urban Co-operative Banks.
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Statements : Every minister is a student. Every student is inexperienced.

Conclusions :
I. Every minister is inexperienced.
II. Some inexperienced are students.
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